ECONOMY

Corporate debt seen as a more serious issue than small failures

The Yvonni stores, Schiesser Pallas, the Avgerinopoulos group: These are enterprises that had scarcely made the news before they suddenly became the top story a couple of weeks ago when each faced a problem of viability or, in the case of Schiesser Pallas, an acute need to cut costs – all at once. What will happen, however, when the voracious TV cameras move on to the next big story? Will the 500 laid-off employees at Schiesser Pallas find new jobs? Will Hondos Center or Gallerie de Beaute save the Yvonni Stores? What will happen with the 60 million euros owed to banks by the Avgerinopoulos group? The bankers contacted by Kathimerini are more worried about the larger companies that owe hundreds of millions, or even billions, of euros and think that too much was made of the latest round of bankruptcies, which they see as a normal occurrence in a free market. In the past couple of years, especially, banks, under the threat of enormous outstanding corporate debt, have been trying to help companies restructure, with positive results in some cases. But one wonders: If the Avgerinopoulos group can borrow 60 million euros, how much could giants such as Titan cement or Coca Cola HBC borrow? And what guarantees were given in return for these loans? The businesspeople themselves hold their share of blame. A few have been proven shortsighted, doing nothing to improve their situation until overwhelmed by debt and the tougher-than-expected competition. Possible bankruptcy by the Avgerinopoulos group may not pose a threat to the banking system, nor the economy as a whole, but if banks could not foresee the difficulties in this case, what will happen with the debt-ridden passenger shipping and fish farming sectors? We let the bankers speak. EFG Eurobank Ergasias Managing Director Nikos Nanopoulos – ‘Failure is part of the game’ «The recent phenomena are part of the game. A free economy includes business failures, either due to special circumstances or mistaken, even irrational, business moves that lead to problems and difficulties. «We see that in the present phase, we find problems mainly in retail commerce, among retail networks where competition is fierce and some companies have overextended themselves. However, not all cases are alike. Schiesser Pallas is a different case. It was able to maintain its factory several years ago at a time that the garment sector had practically vanished. It is natural that they would want to transfer production to a place with a fifth of the labor cost. «All these events, however, highlight the need for policies that will help create jobs. Whether these policies will be successful or not will be determined qualitatively. «It is true that banks make mistakes and arrive at wrong estimates. They may be led astray or be convinced to finance shaky business plans. «It is true that all banks have in their portfolios cases of heavily indebted businesses. Whether the problem will come to a head or not is a matter of conjuncture. This does not mean that banks are not trying to find solutions and help businesses overcome their crises. There are ways out. The economy is healthy with a strong growth rate and interest rates are at historical lows.» Bank of Piraeus Chairman Michalis Sallas – ‘Deal with the problem without panicking’ «There is indisputably a slowdown in demand which will certainly affect some enterprises, especially those producing or trading items or services low in household priorities. My estimate is that the slowdown in demand will continue and more businesses will face similar problems. Let me make it clear, though, that the problem is less widespread than portrayed in the media. In many cases, the problem is simply one of cash flow. So, by making some concessions or providing a way out, we can boost liquidity and avoid undesirable outcomes. «The banking system is in no way to blame for the recent bankruptcies. Most banks are actually doing what they can to avoid a worsening of the situation. They provide considerable assistance to healthy enterprises that are facing some difficulties. I consider it paradoxical for some to talk about the responsibility of the financial sector, since it was we who had first detected the economic slowdown and simultaneously offered companies a lot of support. We should not forget that current interest rates are the lowest in recent years and among the lowest in Europe. «As for credit to enterprises and risk assessment by the banks, there were no excessive loans, no lack of assessment of the companies and no lack of guarantees. There may have been, indeed, a lot of competition in consumer loans but in the case of corporations, where credit is lower than the EU average, banks were especially careful. They indisputably contributed to the development and modernization of many large and medium-sized enterprises in recent years. Emporiki Bank Chairman Yiannis Stournaras – ‘Better a quick death’ «Bankruptcies, like enterprise creation, are a natural development in a free market. There is no reason to keep a condemned business alive. Businesses close either because of management mistakes or because a sector loses a comparative advantage, or even due to globalization and the transfer of production to countries with lower costs for labor. «I do not consider the recent examples worrying. What we ought to worry about is the possibility of an economy entering a recession or a deflation environment where banks would face systemic problems from enterprises. Banks automatically attempt to solve problems with businesses if they consider that the problems are short-term and not the result of incompetent management. When viability is impossible, a quick death is preferable to artificially keeping alive a fundamentally weak company. «The labor market is a very serious issue. Human beings are not stocks or bonds. Neoliberalism has narrowed the range of policy options and tools for governments and parties. Total deregulation creates problems and this is where the State can play a role. The question is: How do you introduce flexibility in the labor market? How can employees move from one company to another, one sector to another, one region to another. How are we to retrain them and provide them with the skills that will allow them to remain active in the job market? «Banks are also enterprises, prone to business mistakes. Competition is tough and mistakes are made under pressure. The issue is how to deal with these mistakes. Risk management systems have significantly improved and non-performing loans are decreasing. At the same time, banks have contributed significantly in the effort to restructure enterprises.»