29 June 2015

Financial Times: Greek banks - not in their hands

Not for the first time, Greek banks are nearing a point of no return. Greece faces a liquidity crunch, depositors still withdraw cash and, with no alternative sources of funding, lenders continue to plug the gap with emergency central bank liquidity. If Athens can agree a deal with its creditors, the banks can still emerge from their liquidity crisis before it becomes a solvency crisis.

Domestic deposit outflows in the first quarter from Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank were just over €25bn, an average decline of more than 14 per cent.

The pace has slowed markedly, in spite of public sector withdrawals. But data from the Greek central bank show banks’ use of central bank funding more than doubled to €113bn — or about a third of total assets — between end-2014 and the end of April. And €74bn of that was in emergency liquidity.

The collateral banks need to post to obtain emergency funding is finite, but they have enough for now. Available collateral is only half the problem. The other half is that the European Central Bank decides what counts as collateral. It can restrict liquidity access at any time. Banks have to hope that it does not want their blood on its hands.

Yet the lenders are surprisingly resilient, reporting increased domestic pre-provision operating profit as they cut costs. Asset quality is still slipping though. Some borrowers are delaying payments in the hope of benefiting from government debt-relief policies. Moody’s says sector bad loans could hit 40 per cent of gross lending this year from 34 per cent at end-2014. And although common equity tier one capital ratios exceed regulatory hurdles, the agency notes that about 55 per cent of banks’ capital takes the form of deferred tax assets — not the best quality capital.

Greek banks believe normality can return swiftly if Athens agrees a deal. Maybe. For now they are stuck nervously waiting for the politicians to come to an agreement.

Full article on Financial Times (subscription required)

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