In the last five years the Greek banks have improved significantly their position and their financial figures, guided by the recovery of the Greek economy. They have definitively turned the page, pointed out the president of the Hellenic Banking Union (EET) and chairman of the Board of Directors of the National Bank Gikas Hardouvelis, speaking at the EET annual general meeting.

As Mr. Hardouvelis mentioned, among others, non-performing exposures have shrunk significantly. At the end of December 2023, they amounted to 9.9 billion euros, a percentage of 6.6% of the total loan portfolio. This percentage is higher than the average in Europe, which is currently around 1.8%. But the drop was impressive: Because in September 2016, the percentage of NPEs was 49.1%, and in absolute size 106 billion euros, said the president of EET. In fact, in 2023, Greek banks showed a decrease in non-performing loans at a time when an increase was observed in the rest of Europe. This huge drop was achieved by organic and non-organic methods. The most important contribution was the securitization program “HERAKLIS”, which was based on the help of the State. That is, in the provision of a guarantee by the Greek State, priced on purchase terms, and the corresponding commission payment to the Greek State by the banks, he added.

The securitization program started in 2019 and is still ongoing. The guarantee was based on reliable business plans evaluated by international rating agencies. Today, the banks want an even greater increase in the perimeter of “HERAKLIS” so that all balance sheets can be cleared relatively quickly, said Mr. Hardouvelis.

The faster we converge to the European average of 1.8%, the faster and bigger will be the upgrades of the banks by the rating agencies, but also the consequent upgrades of the Greek State itself. As a result, the margins with which the State borrows and the entire economy decrease faster.

In the HERACLES Program, he pointed out, there is a virtuous circle between banks and the economy:

• The State increases the perimeter of HERACLES III, and at the same time enjoys more income from the guarantee itself, but above all enjoys an economy with an even more stable financial system and lower interest rates, which in turn bring even more growth.

• Stability and growth bring even higher revenues to the State, while strengthening businesses, households and banks even more.

Speaking of upgrades, two systemic banks already have investment grade from two different rating agencies. It is expected that the rest of the banks will follow soon, and even more houses. These evaluations show that we have turned the page in the eyes of international evaluators, said Mr. Hardouvelis.

That we have turned the page can be seen in the clear figures of the balance sheets, said the president of EET, citing five facts:

I. First, the Common Equity Tier 1 ratio (CET1 ratio), closely monitored by the supervisor, SSM, in December 2023 was at 15.5% on a consolidated basis. The corresponding European average was about the same height, 15.7%.

II. Second, the liquidity ratios, which are also monitored by the supervisor, far exceed the minimum requirements. After all, private deposits are on a continuous upward trajectory after 2019. They have increased from 143 billion in 2019 to 194 billion euros today, i.e. by about 50 billion euros. At the end of 2023 the ratio of loans to deposits was at 67.2%, i.e. well below unity, which demonstrates the existence of a surplus in deposits and abundant liquidity.

III. Thirdly, all banks have issued additional bonds and thus have an additional depositor protection cushion, in addition to tier I and II capital. This second cushion is a requirement of the second and also demanding supervisor, the SRB. These bonds have absolutely no direct benefit for the banks, because the banks, having excess liquidity, do not need it, while the bonds burden them with a disproportionate cost. That is, they are compulsorily issued only and only for precautionary reasons of supervision. The banks in Greece and all over Europe are obliged by the supervisor to absorb this extra continuous high and unnecessary cost, which is not easily visible to third parties, solely for the stability of the financial system and the economy, i.e. for the common good. We have also turned the page on this additional cost because the yields on these bonds have fallen from higher than 8% in 2022 to below 5% today.

IV. Fourth, a reliable indicator of the stability of the banking system is the results from the pan-European stress tests, carried out every two years by the ECB, specifically the SSM. In the last tests of 2023, the 4 Greek systemic banks were ranked 5th, 12th, 13th, and 19th among 109 systemic banks, which ranks our country as the 4th best country in terms of banking system stability in the EU-27 and the first in Southern Europe.

V. After many years of downsizing and restructuring bequeathed by the ten-year crisis, for two years now, Greek banks have stabilized and recorded strong positive profitability, while profits after taxes reached 3.6 billion euros.

As a percentage of equity, net profit was at 12%, a percentage well above the European average.

So this year, after 16 years, Greek banks will once again distribute a dividend to their shareholders, as all mature and healthy companies do. This act marks the absolute return of the domestic banking system to normality.

The president of EET also referred extensively to the issue raised by many analysts, journalists, and investors and it is the question of whether this positive course of the banks can continue in the future.

Mr. Hardouvelis, answering this question at length, said, among other things, that investors see the future drop in interest rates and despite all this, continue to buy the shares of Greek banks.

We see bank share prices rising, and price-to-book ratios are approaching their European counterparts. This interest of investors contributed to the successful disinvestment of the Financial Stability Fund. I am reminded of the cases last year of National Bank, Eurobank and Alpha Bank, and this year of Piraeus Bank. I also remind the entry of a non-systemic Bank, Optima, to the Stock Exchange and the attempt to create a 5th banking pillar through the merger of Attica Bank with Pankritia Bank, which is launched in 2024, he added.

Regarding the positive future of Greek banks, Mr. Hardouvelis said, among other things, that investors are optimistic because they see them transforming quickly and compare them to what is happening in Europe. They see that they are investing in new technologies and digitizing. Banks invest over 400 million euros for their digital transformation and these investments are increasing every year.

The explosive rise of all kinds of electronic transactions in Greece started from the era of capital controls, and continues todaywhile the digital euro is expected to become a reality in a few years. With data from 2023 90% of banking transactions are now done online or through various applications, with 3.7 million monthly active users; noted Mr. Hardouvelis.

So to the question of where the profitability will come from in the future, when central bank interest rates start to decline, the obvious answer is from the increase in their operations, mainly from their loan portfolio. This growth is possible in an economy that continues to grow.

The net flow of bank credit to non-financial corporations was also positive in 2023, i.e. for the seventh consecutive year. New business loans were more than repayments of older maturing loans. And these credits were directed mainly to the sectors of industry, energy, trade, and tourism. Even in retail banking, where net credits have not yet been able to reverse their old negative course, in 2023 we saw a positive sign of 3.8% in consumer loans.

Of course, the big challenge for the banks and the economy is the expansion of their loan portfolio to Small and Medium Enterprisessaid Mr. Hardouvelis.

In Greece, most businesses are small. Most of them, especially the very small ones, are unable to present business plans and document their future profitability. Emphasis must be placed there, both by the banks and by the State. And the supervisors may have to soften a bit, because many times the banks want to lend but the supervisors don’t allow them, either directly or directly with the excessive bureaucracy they impose and which small businesses can’t afford, said Mr. Hardouvelis. .

Everything that has happened in recent years should give us a sense of security because strong banks imply a strong economy, and conversely, a strong economy implies strong banks. In Greece, we have both, said Mr. Hardouvelis and referred to the key role they play in the economy and actively support the National Recovery and Resilience Plan.

Banks support the economy in other ways as well, he said. For example, they are the first companies that started as early as 2015 to follow best corporate governance practices. Next, I recall that the 2020 Law on Corporate Governance of Listed Companies followed the corporate governance legal framework that governs banks.

Banks are also leading the way in the green transition, helping businesses to follow environmentally friendly policies, said the president of EET.

The banks also stand by the Greek citizen, the borrower.

As the president of EET said, in the four-year period 2020-2024, the Greek Banks voluntarily arranged, in consultation with their customers, over 37,000 private and business loans with a total loan amount of 2.4 billion euros. In several cases, they not only extended the repayment period, but also cut it. This average haircut was 22%.

In the 4 years of application of the out-of-court mechanism, there was a successful regulation of bank loan contracts amounting to 1.5 billion, using an electronic platform owned by the State, which, as I mentioned above, are financed by the banks to this day.

Also, in the last two years the banks have created significant barriers to the ECB’s significant interest rate hike. It was mentioned on two occasions:

• First, they designed the BRIDGE III program to subsidize 50% of the interest rate hike of informed but vulnerable borrowers.

• Second, clearly on their own initiative, from March 2023 the banks froze further interest rate increases. Thus, 442 thousand loan contracts were favored, for a total amount of 19 billion euros, with a benefit for the citizens that exceeded 250 million euros.

A large part of the banks’ annual budget is devoted to social responsibility actions.

The banks’ offer is large, but remains discreet, he also said. It is not highlighted sufficiently, as it tends to be done by other agencies in today’s media age. In this direction, it is right and we have decided to undertake communication initiatives that will highlight our important contribution to society, which remains relatively invisible and unknown.

The Hellenic Banking Union will complete 100 years of operation in 4 years. Its uninterrupted operation is due to the will of the members to join forces for the joint institutional treatment of issues of common interest, but also to strengthen their contribution to the Greek economy and society, Mr. Hardouvelis also said.