The need for change at National Bank of Greece is “imperative,” the lender’s chief executive, Pavlos Mylonas, tells Kathimerini, heralding its transformation into a “modern bank that will respond to new challenges.”
This “journey of transformation,” he explains, will unavoidably entail reductions in staff, operational costs and branches, as well as simpler transactions and processes. Mylonas stresses that reducing NBG’s bad loan portfolio is the main pillar of the plan, while arguing that the two solutions tabled by the Hellenic Financial Stability Fund and the Bank of Greece need to be pushed forward in order to assist the process, and “can be implemented in combination.”
What are the main pillars of NBG’s “transformation” that you have already spoken about?
Major changes are indeed afoot at National Bank. Our aim is to make the bank even more powerful, more modern and more effective for our customers, to bring it swiftly into the age of the digital economy, and to ensure that it can confidently meet the new challenges created by the crisis, globalization and technological advancements. The entire international banking environment is changing and we need to respond this. The banking landscape will be very different in a few years, from the simplest transaction to the bank-client relationship. We want to be a part of this evolution and not lag behind it.
What are the immediate priorities?
Dealing with problems from the past, to begin with, like nonperforming loans and the bank’s high operational costs. Secondly, we need to adapt to the challenge of new, more flexible players entering the banking market, be they multinational digital giants or new financial firms. The competition will be fierce, which is why I believe National Bank’s transformation is imperative. This is why we are embarking on such an ambitious plan.
What will these changes mean for your customers?
The customer services model, both in retail and corporate banking, will be modernized so that NBG becomes a lot more flexible and faster than it is today. It will predict customers’ needs and bank employees will be more like consultants, while it will also offer the possibility of transferring simple banking transactions to alternative digital networks. Even though NBG is widely respected and trusted by the market, it is also regarded as a slow and bureaucratic bank. This is something that will change completely. Processes will become more automated and simpler, which will also boost the new customer services model. The benefits will be enormous in the medium term. I aim to make National Bank the Greeks’ first choice.
How will these changes and the reduction of operational costs affect the bank’s staff?
The bank is more than just its capital. The quality and mentality of its staff plays a major role in the bank’s results, its reputation and its prospects. We can’t talk about sweeping change if it doesn’t entail the staff too. Our aim is to renew the organization and instigate a creative awakening. The staff needs to participate actively and feel a part of the solution of the bank’s problems, as well as of the successes we will achieve. I already feel a new energy in the organization for the first time in decades. Mentalities and behaviors that hark back to the ugly side of the public administration will be put behind us once and for all. National Bank is determined to turn over a new leaf. We will change our culture, promote teamwork, create modern products and strengthen our customer commitment. We are already improving human resource management in order to reward capability and productivity. We need to do justice to the efforts of all those people who kept the bank standing over the past years. We are moving ahead with planned staff reductions and new voluntary redundancy programs. Staff reductions are dictated by the need to cut the bank’s operating costs, but also from the reduction of its branch network, which, in turn, is dictated by the simplification of transactions. Most transactions will be conducted via mobile phone and personal computer, for example.
How much time are these significant changes expected to take?
We estimate the “transformation” program will take four years. We will be meeting with investors in less than two months, mainly the major foreign investors, to present our vision for the future NBG. We will present the sweeping changes we are planning, and also detail our plans for the reduction of nonperforming loans – a subject that is of particular interest – and for increasing revenues. The bank is embarking on this journey with several important advantages. It has a strong balance sheet with significant provisions and relatively low level of NPLs [compared to the other Greek systemic banks]. It also has large cash reserves that amount to billions [of euros] and enjoys the trust of the Greeks.
I am very optimistic. I believe NBG will become an example of how we can change and progress as a country. We already have tangible achievements, like the replacement of interest rate swaps (IRS) with Greek government bonds which benefits profitability by at least 100 million euros, the deferred tax agreement and the voluntary departure of more than 700 employees since about mid-2018. We have also made significant progress in corporate customer services – something that has been widely acknowledged by these customers – and are planning similar initiatives in the retail network.
Banks are an intrinsic part of the economy, which is suffering from a major investment deficit. How do you plan to address this deficit?
Fixed investments are indeed necessary for bolstering and accelerating economic growth and there is certainly a deficit of those. For this to change, the confidence of investors, both domestic and foreign, in the economy needs to improve. The credibility of economic policy and trust in the economy’s prospects are incredibly important factors in activating investment capital and the Greek economy needs a lot of capital if we want to start talking about a new cycle of sustainable growth.
The problem is not that banks, and NBG in particular, don’t have the liquidity to provide funding but lackluster investor interest. We need to show a great deal of consistency and to continue implementing structural reforms in the Greek economy. We need institutional change, changes in the tax and social security system, changes in the structure and speed of the justice system, in the public administration, education and also legislation concerning land use. These changes would allow us to gradually attract the direct investments we need so badly. This is the only way that we will be able to say that the sacrifices Greeks were subjected to during the crisis are bearing fruit.
You have said that bad mortgage loans are the most important category of NPLs. Do you believe that the solution put forward by the government in cooperation with the banks will address this problem effectively?
Overdue mortgages on primary residences belonging to families that have been hurt most by the crisis are a major social issue. The government’s initiative distributes the burden of the solution, with banks offering sustainable debt restructuring, which may also include a partial writeoff. The state, in the meantime, will subsidize the lower incomes based on realistic spending needs. Thus, all three parties – the debtors, the banks and the state – will work together to protect primary residences.
How achievable is an NPL reduction to a level comparable to other European countries?
National Bank has a solid stock of provisions for overdue loans and I therefore believe that it will be able to reduce them closer to European levels. We already have an important advantage and particularly with regard to mortgages, where I believe the government’s solution will make a decisive contribution.
A special purpose vehicle (SPV) or an asset protection scheme (APS) for transferring NPLs is considered a given. What are the conditions required for these tools to succeed?
Both schemes can play an important part. The APS solution is easier to introduce because it has already been implemented in Italy and the institutions know it. I believe we are quite close to its legislative implementation. The SPV solution is more innovative and can lead to a more substantial reduction of NPLs, but it is unfamiliar to the institutions and would have a calculable fiscal impact. Both schemes need to be pushed and could be implemented in combination, with multiple benefits, I believe.
How likely are more mergers in the banking sector?
Reducing bad loans and operating costs are the top priorities of all four systemic banks. A potential merger would divert them from these important targets, which is why it would not get approval from the institutions and the supervisory authority.
If, at the end of the system’s big adjustment, there is no room for four banks in the Greek market, then maybe we will move ahead with mergers. Obviously, though, this is something that concerns the distant future.