Greek Fin. Min. – BoG Guv: Investment grade, banks, bad loans and economy on the table of the first meeting

The new Minister of National Economy and Finance Kostis Hatzidakis will have a full discussion with the Governor of the Bank of Greece Yiannis Stournaras this afternoon.

The focus of the meeting between the two men, the first since the last elections, is expected to be on all the current issues concerning the Greek economy and the domestic financial system.

The central banker will brief the government’s new chief of economic staff on the state of the industry and the challenges it faces in the coming years.

Investment grade

It will also underline the importance of recovering the investment grade from the Greek public.

As he had emphasized in his last report, this is the most basic challenge of the policy that the government is asked to carry out.

And this is because the exit from the “garbage” category after 13 years, will contribute decisively to the following:

• Firstly, it will strengthen the resilience of the Greek economy to exogenous disturbances and episodes of volatility in international markets
• Second, it will reduce the cost of raising capital for the public and private sectors
• Third, it will facilitate the management of public debt
• Fourth, it will give impetus to investments and, by extension, to growth

The challenges for banks

Hatzidakis and Stournaras are expected to discuss the management of bad loans from now on.

NPL ratios may have fallen to single-digit levels, but they still remain at a distance from the European average.

In addition, a series of securitizations of systemic groups have not yet been completed, while the insecurities in the smaller credit institutions will have to be addressed immediately, in view of the creation of the fifth pole in the sector, through the attempted merger of Attica Bank and Pancretan Bank.

According to the domestic monetary authority, the ongoing rise in European interest rates, combined with high inflation, may cause a possible deterioration in the quality of banks’ assets.

“Heracles”

In this context, the Ministry of Finance is examining the activation of a third round of the “Heracles” state guarantee program to facilitate the above transactions, which will significantly speed up the European convocation.

At the same time, the Bank of Greece in its last report had highlighted the high percentage of private debt in relation to GDP, which may be off the banks’ balance sheets, but should be restructured in an effective way by the management companies.

Besides, Mr. Stournaras is expected to refer to the significant strengthening of the organic results of the largest banks, basically as a result of the tightening of monetary policy by the ECB and the reduction of credit risk after the consolidation of their balance sheets.

However, he believes that challenges remain related to the need to maintain strong profitability and further reduce non-performing loans, while deferred tax liabilities (DTCs) continue to make up a large part of banks’ capital.

According to the latest data from the Bank of Greece, the Common Equity Tier 1 (CET1 ratio) on a consolidated basis decreased to 13.4% in March 2023 from 14.4% in December 2022, as well as the Total Capital Ratio (TCR) to 16.5% from 17.4% in December 2022.

Both remained below the respective averages at the eurozone level.

Chronic weaknesses

Finally, Mr. Stournaras will in all probability present to Mr. Hatzidakis the chronic weaknesses of the Greek economy, which despite the progress of the last five years, still ranks relatively low in the international indices of structural competitiveness.

Pathogens of this kind, which limit competitiveness and create disincentives for investment, include the following:

• Delays in the administration of justice
• The bureaucracy and inefficiency that still exists in some sectors of the State
• The lag in basic infrastructure
• The insufficient fight against widespread tax evasion
• Quasi-oligopolistic conditions in specific markets for goods and services

Distortions in the energy market

Additional examples of inherent weaknesses are, according to the Bank of Greece, the low participation of women and young people in the labor market in combination with the unfavorable demographic trend, the increased risk of poverty and social exclusion, significant regional inequalities, deficiencies in the so-called ” triangle of knowledge” (education – research – innovation) and the high dependence of the Greek economy on fossil fuels.