Banks optimistic about new government

During a meeting with the governor of the Bank of Greece on Friday, the heads of Greece?s main commercial banks expressed optimism about the impact of developments in local politics over the last couple of days on the country?s economy.

BoG chief Giorgos Provopoulos had invited the chief executive of National Bank, Apostolos Tamvakakis, the president of Alpha Bank, Yiannis Costopoulos, Eurobank EFG president Timos Christodoulou and Michalis Sallas, the president of Piraeus Bank, to discuss the situation in the economy and the banking system.

The country?s top bankers suggested that the formation of a coalition government could be good news for the economy, arguing that it will ease pressure on shrinking deposits. The flight of capital abroad is also seen easing.

Another beneficial factor will be the disbursement of the sixth tranche of Greece?s first bailout package, amounting to 8 billion euros, which is expected as soon as the new government has taken office and affirmed the country?s commitments as agreed to by the George Papandreou government.

Provopoulos reportedly talked about the current problems in funding the economy, as credit expansion posted a rate of -2.2 percent in September, the worst on record.

The commercial bankers referred to the rapid deterioration in liquidity conditions, which had been aggravated in recent weeks due to the political uncertainty. In the year?s first nine months, deposits shrank by 26.4 billion euros. In September alone, the deposits outflow exceeded 5 billion euros.

Besides the requirements to emerge from the implementation of the new private sector involvement (PSI) plan, providing for a 50 percent haircut on Greek debt, banks are yet to learn what their losses will be this year as they are awaiting the results of the BlackRock inspection of their loan portfolios.

A very rough estimate puts losses at between 25 and 30 billion euros from the bond haircut (part of which has already been calculated in provisions from the previous PSI), while another 15 billion euros is expected to be required from the impact of the financial crisis on loan portfolios.