August 16, 2022

Greek Banks Feel Hostage to Debt Crisis

Unlike their government, Greek banks were seen as well managed and prudent before the crisis. But they became victims of their government’s debt woes, severed from international lines of credit and able to borrow only from the European Central Bank.

Now the banks complain that the E.C.B. is pressuring them to reduce their dependence on central bank funding, hurting not only the banks but Greek businesses and consumers who are unable to get credit.

Alexandros Manos, managing director of Piraeus Bank, argues that the E.C.B. should be doing just the opposite: lending the Greek banks more money to help the economy recover, lift tax revenue and increase the country’s ability to pay its debts.

“It is quite possible that the economy has hit bottom,” Mr. Manos said during an interview, citing data showing increased exports and tourism revenue. “If we were able to lend into the economy, it could have a substantial impact.”

There is little doubt that, though small by international standards, the Greek banks are crucial actors in the debt drama, which has flared in recent days with uncertainty over bailout payments and a reshuffled government that was facing a confidence vote Tuesday night. If the banks fail, so does the Greek economy — with dire repercussions for the euro area.

The ratings agency Moody’s Investors Service last week highlighted one way that a Greek banking crisis could ricochet around the Continent. Moody’s said it was reviewing whether to downgrade the French banks Société Générale and Crédit Agricole because both have subsidiaries in Greece.

Crédit Agricole came under scrutiny even though its subsidiary, Emporiki, has relatively modest holdings of Greek government bonds. Emporiki’s loans to the Greek private sector of €21.1 billion, or $30.3 billion, could be at risk if the government defaulted, Moody’s said.

“The secondary effects of a Greek default scenario could have a significant impact on the bank, owing to these direct exposures to the local economy,” the agency said.

Société Générale has €2.5 billion in Greek government bonds while its subsidiary, Geniki, has €3.3 billion in loans to the Greek private sector, according to the bank. The French bank has said the effects on it of a Greek default would be manageable.

Both Société Générale and Crédit Agricole supply their Greek subsidiaries with financing, putting them in a better position than the independent Greek banks. The fate of the independents depends heavily on the E.C.B., as Mr. Manos’s comments illustrate.

That dependence has become painfully clear in recent weeks, as the banks became hostages in a dispute between central bankers and political leaders. The E.C.B. implied that it might have to cut off financing to Greek banks if Germany insisted on requiring holders of Greek bonds to share the cost of the next aid package.

The E.C.B. feared that any change in repayment terms might be seen as a Greek default. Fitch Ratings said Tuesday that even if banks agreed voluntarily to buy new Greek debt when their existing bonds mature, that would be considered a “credit event,” or a default.

“All this uncertainty during the last couple of months has given the economy another kick,” said Paul Mylonas, head of strategy and chief economist at National Bank of Greece.

In an economy often derided for lack of competitiveness, the largest Greek commercial banks — like National Bank of Greece, Piraeus Bank, Alpha Bank and Eurobank — were regarded as exceptions.

Article source: http://feeds.nytimes.com/click.phdo?i=0298e849972b4f0aa4da7dbc03a0a31e

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