19 June 2015

Financial Times: Greek banks - Athens’ Achilles heel

Until this week, the big suspense surrounding Greece was whether Athens would be able to meet a €1.6bn debt repayment to the International Monetary Fund (IMF) due at the end of June or go bankrupt.

But the fear of default is rapidly being overtaken by a separate — and possibly more dangerous — ticking time bomb: the solvency of Greece’s banks.

As anxious savers withdraw deposits, economists warn that Greece’s precarious lenders could collapse. During a meeting of eurogroup finance ministers on Thursday, Benoît Cœuré, a member of the European Central Bank’s board (ECB), speculated that Greek banks might not be able to open for business on Monday.

The ECB has provided crucial, emergency funding to Greek banks that has sustained them in recent months. Yet as Greece’s finances continue to deteriorate, the ECB’s own rules may soon prevent it from extending further help, paving the way for a Greek exit from the eurozone.

“The fate of Greek banks hinges on political developments, which will affect both their liquidity and their solvency,” said Jonas Floriani, an analyst at KBW Research.

Analysts say Greek banks are vulnerable on three fronts.

The first — and most immediate — is a liquidity shortage. This means banks’ ability to honour short-term withdrawals is worsening as consumers and companies take their cash elsewhere fearing a forced conversion of their savings into a new, less valuable currency.

Domestic resident deposits have already fallen by roughly a fifth to just over €140bn in the six months to April, according to the latest Bank of Greece data, and analysts warn this trend has accelerated over the past six weeks.

Deposit outflows hit €1bn on Thursday alone and about €3bn this week, according to two senior Athens-based bankers.

As a result, Greek lenders are relying on ECB funding and, in particular, its emergency liquidity assistance scheme, which they have tapped extensively as other sources of cash evaporate.

© Financial Times