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Greece draws investors seeing bad loans come good, says Piraeus chief Sallas

By Christos Ziotis & Nikos Chrysoloras

International investors have started placing money into Greek banks as they anticipate the improving economy will boost profits across the industry, Michalis Sallas, chairman of Piraeus Bank SA, said.

As the country’s deficit narrows and output stabilizes, banks are likely to recover more than they previously projected from struggling borrowers, Sallas said in an interview.

“The prospective reduction of non-performing loans and the continuing decline of deposit rates in Greece mean that profits will rise significantly,” the 63-year-old banker, said at his office in downtown Athens last week.

Piraeus, the country’s second-biggest bank by assets, last month raised 1.75 billion euros ($2.4 billion) in new capital from foreign investors in the latest sign Greek lenders are bouncing back from the sovereign-debt crisis. It also sold 500 million euros of three-year bonds on March 18 in the first public debt sale from a Greek lender since 2009, according to data compiled by Bloomberg.

“Those who invest in Greece are not just looking for short-term gains,” Sallas said. “They include institutional investors, like pension funds and big, long-only funds.”

The Greek economy will probably receive a further boost next year when banks complete their de-leveraging and begin to increase lending to companies and consumers, said Sallas, who trained as an economist in Germany.

Greece, whose debt load is close to 180 percent of gross domestic product, or about 326 billion euros, has narrowed its budget deficit as a condition of the rescue program, backed by euro-area states and the International Monetary Fund. The government and EU predict that Greece will emerge in 2014 from six years of recession and German Finance Minister Wolfgang Schaeuble last week said euro-area governments are discussing ways to boost growth in the bloc’s most indebted nation.

“We see a real improvement, especially when it comes to fiscal discipline, but we need to do more to bolster the competitiveness of Greek companies,” Sallas said. “Domestic consolidation is necessary to create economies of scale and companies which can compete in the international markets.”

Greek Finance Minister Yannis Stournaras said earlier this month his country is preparing for a small issuance of three- or five-year bonds, in the first semester of this year.

“Everything indicates that this inaugural bond issue of the Greek state will have a positive reception from international investors, underscoring their confidence in economic recovery,” said Sallas, a former government official and chairman of the stock exchange.

On March 26, Piraeus said it placed 1.03 billion new ordinary shares at 1.70 euros each, after a stress test conducted by the country’s central bank identified a capital shortfall of 425 million euros.

Sallas, whose bank has taken over six other lenders in the last 18 months, said Piraeus has set aside 14 billion euros to cover 27 billion euros of troubled credits, amounting to about a third of its loan book. He says his bank probably won’t need additional capital after the European Central Bank asset quality review and stress-test later this year.

“The Bank of Greece applied a very conservative approach, and, I believe, has taken precautions to align its methodology with that used by the European Central Bank,” he said. “In any event, in Piraeus we have sufficient buffers to accommodate any eventuality.”

[Bloomberg]

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