Banks gear up for new era

The Greek banking sector has undergone structural changes without undue upheavals, and banks now enjoy a high degree of capital adequacy and a satisfactory level of profitability which bodes well for their future growth, says Hellenic Bank Association (HBA) General Secretary Christos Gortsos in an interview with Kathimerini. The financial sector has been the main field for mergers and buyouts in recent years. Do you consider Greek banks have won the battle for competition? Have they matured through the restructuring process? The Greek banking system managed to absorb the inevitable shock waves of such major changes and the results are seen as fully successful. The wave of mergers and buyouts was dictated by the cumulative effect of deregulation, the transition to the single currency and rapid technological changes. It was then extended to the neighboring Balkan countries. On the whole, Greek banking institutions today fulfill two basic criteria: a high degree of capital adequacy and satisfactory profitability, despite the fact that important items on the expense side remain inelastic. With these two elements, combined with the Bank of Greece’s high overseeing standards, the system displays a high degree of stability which benefits the economy. Safeguarding this stability will be a prerequisite for any further changes. Many people are expressing the view that the operation of the Teiresias bank risk management system is not meeting its basic goal. The decision by the Bank of Greece to deregulate consumer credit was largely based on the application of Teiresias’s credit program. However, banks appear reluctant to feed customer data into the system, the effectiveness of which is being cast into doubt. How does HBA face this problem? Teiresias is indeed a substantial tool for banks to evaluate credit risks and rationalize the pricing of their services on an individual basis, obviously to the benefit of their good customers. The banks are therefore seeking to have the system in operation as soon as possible. It is technically ready and being fed with the relevant data. However, the full operability of the system is thwarted by a problem originating in the Personal Data Protection Authority. One of our top priorities is to curb the agency’s objections, which do not permit us to feed the system with recent data for each customer so as to make it immediately useful. We are aware that HBA has spend a considerable amount of time on the problem of compound interest. Legislative provisions and ministerial interventions have failed to solve this huge problem which is expounded by continuing court rulings which are adverse for banks. Do you believe a solution is possible? The problem is indeed persistent, despite the fact that banks’ debt rescheduling and write-offs according to the law were very substantial – about 67 percent of interest. I may add that, in many cases, banks went beyond the law and offered even more generous terms on an individual basis, taking into account personal and social factors. I see the persistence of the problem as negative on several counts: First, it maintains a climate of legal uncertainty, incompatible with a modern European banking system. Second, it maintains expectations for even more favorable provisions in the future, which fuels reluctance by certain debtors to settle their debts. Let me note that up to the end of 2002, of a total of 20,998 corporate, housing and hotel loans which were affected by the favorable measures legislated, only 3,660 debtors applied to banks to learn more about them and obtain the relevant forms. In the end, only 641 settled under the new terms. Third, and most important, the problem creates conditions of biased treatment against the consistent customers who form the vast majority. And, additionally, a number of debtors who have refused to settle have become considerably richer due to capital gains from property that they acquired with the loans that remain in their ownership. Despite the progress they have made, do you consider that Greek banks are in a position to adapt to the new international realities, as set by the Basle Accord? The new proposals of the Basle Accord are expected to be finalized in 2004 and to come into force in 2007. The new rules will change the method for the calculation of capital requirements for coverage against credit risk and institute additional requirements for coverage against operating risks. The most significant innovation will be that banks will be given the right to calculate such requirements against credit risk on the basis of results from the application of internal systems they have themselves developed. On condition of certain technical prerequisites, the size of the equity capital that banks will have to set aside against risks will be lower than it is today. Evidently, the new rules provide powerful incentives for banks to develop such internal systems, and we are already studying ways of adapting and making systematic efforts to support this process.

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