Greek banks, dealing with a possible “cliff-edge” impact as soon as pandemic-related loan moratoriums come to an end, face a difficult 2021, in accordance with analysts, but their predicament stays manageable since authorities subsidies will kick in the place reimbursement holidays end to assist in any other case creditworthy debtors stay performing.
Like many banks in Europe, Greece’s lenders had frozen repayments on some €30 billion of loans as of January 2021 in a bid to assist struggling debtors deal with the impression of the coronavirus, in accordance with the Hellenic Bank Association, a commerce physique. But the hiatus can’t final ceaselessly, and the ultimate deadline for tranche funds for many remaining debtors is the end of March. The European Commission warned in November 2020 that whereas Greek lenders have been insulated from a wave of defaults due to these moratoriums, they may face a “cliff edge” impact as soon as they end.
As of the end of the third quarter of 2020, Eurobank Ergasias Services and Holdings SA had €4.9 billion below moratoriums, and CFO Harris Kokologiannis advised analysts throughout an earnings name that the financial institution supposed to increase them for purchasers in the journey and tourism sector into 2021. Alpha Bank AE reported €5.4 billion of loans on ice on the end of the third quarter, whereas National Bank of Greece SA reported €3.6 billion as of the time of its Nov. 30, 2020, earnings name. Piraeus Bank SA had put €5.3 billion of loans below moratoriums between the beginning of the pandemic and its Nov. 23, 2020, earnings name. Some 14% of loans in the Greek banking system on combination have been below moratoriums as of the end of June 2020, in accordance with Fitch Ratings.
A bridge over troubled water?
“Greece is in a manageable but complex situation,” Paul Hollingworth, international financial institution fairness specialist, Creative Portfolios, and contributor to SmartKarma, an impartial funding analysis platform, stated in an e-mail.
For retail banking, the Greek authorities’s “GEFYRA” or Bridge program, which subsidizes mortgage debtors on repayments on their major residence, will present some welcome assist to banks as soon as moratoriums end, he stated. GEFYRA successfully replaces an earlier state assist for the mortgage sector, the Katseli Law, which got here into play in 2010 with the intention of defending debtors from the lack of their major residence. This regulation acquired widespread criticism for alleged abuse by strategic defaulters, but Hollingworth believes the federal government has discovered from these experiences.
“GEFYRA … is a refinement in many ways of the moral hazard-ridden Katseli Law and is more efficient than the latter. The government is mindful of responding to authentic specific need rather than poorly structured and more expensive coverage,” he stated.
GEFYRA got here into impact in November 2020 and is designed to assist debtors for a nine-month interval. More than 160,000 debtors had utilized for subsidies below this system as of early January, a spokesperson from the Greek ministry of finance stated in an e-mail. In November and December, the ministry of finance paid out €23 million euros to 38,000 debtors below the scheme.
Greek Finance Minister Christos Staikouras is in the method of devising an identical subsidy to assist firms, and has already began discussions about this with European establishments, the spokesperson added.
In addition, banks could resolve to make their very own restructuring agreements with debtors who fall outdoors the scope of state subsidies, Pau Labró Vila, director of economic establishments at Fitch Ratings, stated in an interview.
Fitch additionally warned in a Dec. 11 notice that loan moratoriums, whereas offering much-needed assist to debtors, run the chance of weakening an already-weak fee tradition to the detriment of future asset high quality.
A level of injury is inevitable. The Greek central financial institution stated in December that it anticipates the pandemic will create between €8 billion and €10 billion of latest nonperforming loans.
This is nowhere close to the height of the final credit score cycle, when NPLs hit €107 billion. But CEOs are already bracing for the impression, with National Bank of Greece’s Pavlos Mylonas saying in the financial institution’s most up-to-date earnings name that he anticipated 15% to twenty% of loans below moratorium to default.
Goksenin Karagoez, credit score analyst at S&P Global Ratings, stated it’s tough to foretell with any diploma of accuracy how extreme the extent of defaults will probably be as a lot is determined by the progress of vaccination and the velocity of the rebound in the Greek economic system.
“Defaults could be above banks’ expectations,” he stated in an interview.
Jonas Floriani, director at funding banking boutique Axia Ventures, agreed that it’s tough to pin a quantity to potential defaults presently.
“It will take a few months until we know exactly what is happening out there. Of course, this will also depend on the macro environment in the coming months,” he stated in an e-mail, including that the fourth-quarter 2020 outcomes for the “big four” banks may present a clearer image.