Important “truths” and forgotten “secrets” revealed about the banking system by the Bank of Greece Report

For several years the Bank’s Financial Stability Report was a … nightmare. With “red loans” (Npls) being the dominant reality for the domestic banking system, i.e. nullifying its existence as a banking system, there was no light in sight anywhere.

Until the well-known Herakles I and II came. And a little with the government guarantees, a little with the zero risk from the ECB, the “red loans” were loaded into the “cart” and went to the bazaar for sale to the specialized “crows” of the market Management Npls. Some remained as such, others were securitized, but in any case the balance sheets of the systemic banks were unhooked from their “red” load and the banks started to go to the market as banks again.

And because one hand washes the other and two washes the face, as the saying goes, with the banking system “getting rid” of the debt, the Greek public also acquired the requirement to return to the investment grade rating level… Somehow the Reports of the Bank of Greece for financial stability began to leave the nightmare behind and show again a banking system that – with its problems – again looks like a … banking system.

And that is why it is important today to pay attention to the … details of what is mentioned in the Report. The first finding, of course, is the positive impression of the further reduction of “npls” on the balance sheets of the systemic or otherwise important banks, as the Big Four banks are called by the Central Bank of Greece. There, the drop in npls is really huge and unprecedented in the history of the European banking system, as since 2016, which was at its worst point, the percentage has fallen by 90.7%, i.e. by around 97 billion euros (!) according to the Bank of Greece.

At the end of 2023, in fact, all four systemics had a single-digit npls rate, a total of 6.6%, while three of the four (he did not mention which ones) were below 5% and tend steadily to the European average, which is much lower, at 1 .9%. So good so far.

In Greece, however, we don’t only have the four systemic banks that Hercules “cleaned out”. We also have the less important ones as the Bank of Greece calls them. What is going on there;

There the picture is very different. “Red loans” make up 37.6% of their total loan portfolio (!). That is, one out of three loans is “red”. The size is very large and knowing what these percentages mean from the previous experience of the systemic banks one understands that there is a big problem that clearly cannot be isolated to these banks, as they are scattered in the domestic economy and have names known and unknown in the four points of the country’s horizon.

What will happen to these banks and consequently their customers or better with those who do business with them? A response is not recorded anywhere in the Report. There is only one report by the TCE that there will also be a Hercules III that will unhook their heavy load on the visible horizon. But this is just a conversation, because the terms with which the supervisory institutions both the SSM (EKT) and the competent authority of the Commission’s Directorate General for Competition deal with the “issue” have already changed.

We said that Hercules at this particular moment came as “from a machine god” to solve the impasse on the bank stage… with the approval of the producer (YPOIK/guarantees) and the director (EKT) of the drama performance, as well as with the approval of the scene supervisor (Eurostat). Now the conditions for Hercules to reappear have different and “costly” conditions.

Who will pay for the marble? For all this, the Report of the Council of State does not say a word, it only predicts the reappearance of Heracles. We will wait to see how the new episodes of this series will be directed and written…

A second element pointed out by the BoE in its Report is also indicative of how “rich” the scenario of improving the balance sheets of systemic banks is. He specifically points out that while the banks have made profits, this has been mainly thanks to the low interest rates on savers’ deposits and the correspondingly high interest rates of the ECB to date.

He also points out that their capital adequacy, which is high, is based on a not so good “quality” of funds as 44% of them are none other than deferred taxes, which was also one of the smallest “of machine gods” mobilized “to …I hang out there” so that the four banks can get their heads above water and breathe so they don’t drown.

And to close this small reference to the interesting Report of the Bank of Greece, let us note that its analysts record a renewed increase in the number of “red loans” in 2023. And it is this category of loans based on loans whose “everyday” the repayment delay increases. They are basically business… How much did these “new” reds grow in 2023? They increased by 9%.

Enough would be said to be the warning of a new dangerous horror series, since this percentage means that one in ten new loans enters a phase of long delay in its servicing. No doubt a closer reading of the Report will reveal other such interesting stories…