Inevitable changes in banks
Radical changes in Greece?s banking landscape are inevitable as troika demands changes in the sector in an economic environment continually getting worse and creating more difficulties.
Either by mergers or aggressive changes to balance sheets, including the sale of assets and the reduction of loans provided, shifts in the banking sector will take place in coming months.
By the end of March, the government will also have to readjust labor relations in the industry, placing all employees – in both the private and public sectors – on equal footing. Additionally, bonuses paid to executives will have to be cut along with other ?underground? remuneration techniques adopted.
Troika wants the pay cuts as part of a broader effort to obtain fiscal consolidation and has also asked for the appointment of better trained personnel to banking regulatory positions.
Another way of exerting pressure on banks is via the expansion of government bank guarantees, by 30 billion euros, to support liquidity in the economy.
However this time, the capital amounts will not be channelled into banks based on their market share but lenders will have to put together and implement plans based on their medium term capital needs.
If the plans do not meet eurosystem criteria and demands, the funding will not be provided.
The plans will need to aim at reducing their dependence on European Central Bank funding and state aid over the medium term.
They will have to include specific steps, based on each lenders? size, balance sheet, capital structure, and operating efficiency.
In other words, troika wants banks to return to wholesale borrowing and then to deleverage, reduce the loans they have issued, in the event that they cannot raise necessary capital.
Initial plans need to be completed by the middle of April and after this, the Bank of Greece and European Central Bank will asses the plans and direct money into the lenders, if approved.
