Greek banks busy cleaning up asset quality, more to come

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Greek banks are well placed to deal with any new bad loans that develop this year, having improved their asset quality significantly in 2021, according to rating agencies.

Greece’s overall non-performing loan ratio fell to 18.65% in the third quarter of 2021, the latest period for which data is available, according to the European Central Bank. This is down from 32.92% in the third quarter of 2020, and much closer to the ratios of other southern European economies such as Cyprus and Portugal. Greece’s NPL coverage rate increased on an annual basis to 47.45% in the third quarter of 2021, from 45.04% a year earlier.

Any increase in inflows of new non-performing exposures, or NPEs, should be manageable for major Greek banks and the cost of risk should come down, DBRS Morningside Vice President Andrea Costanzo wrote in a March 23 note. NPEs include “unlikely to repay” loans in addition to loans that are more than 90 days past due.

Less risky balance sheets and better internal capital generation should support bank capitalization, Costanzo said.

Piraeus Bank SA, Alpha Services and Holdings SA, National Bank of Greece SA and Eurobank Ergasias Services and Holdings SA are expected to reduce NPEs and loan loss provisions in 2022 and maintain tight cost control, S&P Global Ratings said in a March 28 report. This will likely allow NBG and Eurobank to restore dividends from 2022 earnings, and Alpha could follow a year later, Ratings said.

The long-term deposit ratings of the four banks were upgraded by ratings agency Moody’s on March 30, due to, among other things, better asset quality and better operating conditions. Banks are likely to further improve their credit profile over the next 12-18 months and are well positioned to tackle any new bad loans.

The war in Ukraine could indirectly slow the recovery of the Greek banking sector through inflation, lower tourism spending and greater investor risk aversion, Ratings said.

Lower NPL ratios

Alpha and Piraeus clearly reduced their problem loans as a proportion of gross customer loans between the fourth quarter of 2020 and the last quarter of 2021, according to data from S&P Global Market Intelligence. Alpha fell to 6.15% from 30.15%, while that of Piraeus fell to 8.47% from 34.51%.

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Alpha Bank completed 16 billion euros in disposals and securitizations of non-performing exposures in 2021, and began to significantly increase domestic lending in the last quarter, after a decade of deleveraging, the bank said.

Piraeus’ sale of NPL through securitization also helped reduce the stock of bad debts in the sector. Alpha and Piraeus both used the government-backed Hellenic Asset Protection Scheme, or HAPS.

The NPL cleanup resulted in a loss of €2.9 billion at Alpha in 2021, compared to a profit of €104.0 million in 2020. Accelerating risk reduction has also put pressure on the net interest income from Piraeus, which fell to 318 million euros in the fourth quarter. of 2021, compared to 1.49 billion euros a year earlier.

Alpha Bank told Market Intelligence that it aims to reduce its NPE ratio to 7% at the end of 2022, from 13% at the end of 2021. Eurobank said that it plans to reduce its NPE ratio to 5.8% in 2023, from 6 .8% in 2021.

Piraeus Bank and the National Bank of Greece did not respond to a request for comment.

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European banks still face risks amid the phasing out of pandemic-related state measures and Russia’s invasion of Ukraine, which could put pressure on asset quality, Bank of Greece Governor Yannis Stournaras said in a speech on March 22.

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