Greek bank losses show predicament amid record outflows

Greek banks, forced into a central bank liquidity lifeline, are poised to report sustained losses as they grapple with record deposit outflows and an economy that plunged into double-dip recession.

National Bank of Greece SA, the country’s biggest lender by assets, and Alpha Bank AE report first-quarter earnings Thursday. Piraeus Bank SA on Wednesday said its first-quarter loss was 69 million euros ($75 million), as deposits shrank by 15 percent to 46.5 billion euros, with 1.9 billion euros of private deposit outflows through mid-May.

“We expect the Greek banks to remain loss-making this quarter” on more expensive funding from the ECB and higher provisions for souring loans, Euroxx Securities SA analyst Maria Kanellopoulou said. The prolonged uncertainty on Greece’s support program “will inevitably weigh on banks’ asset quality, with a fresh rise in new non-performing loans.”

Greek lenders have lost access to capital markets and the European Central Bank’s normal financing operations amid a standoff between the country’s government and its creditors over the terms of the current bailout. Lenders rely on more than 80 billion euros of Emergency Liquidity Assistance extended by the Bank of Greece to stay afloat, a more expensive source of funding, while they are forced to participate in liquidity- draining auctions of government treasury bills.

‘Tough’ Outlook

An accord with creditors would “remove any uncertainties and restore confidence in the economy and the Greek market,” Piraeus Bank Chairman Michael Sallas said in a statement. “This development will enable the return of deposits into the banking system, its access to cheaper funding sources and enhance liquidity in the economy.”

European officials lined up to rebuff Greek claims on Wednesday that the country will start drafting an accord, and that a deal is close with the ECB, European Commission and International Monetary Fund.

Piraeus Bank has a “tough second quarter in sight,” Pantelakis Securities SA analyst Paris Mantzavras said in a note to clients. While deposit outflows have subsided in quarter so far, net interest income “will bear the brunt of higher wholesale funding.”

Capital Injections

Eurobank Ergasias SA Chief Executive Officer Fokion Karavias earlier this month said the bank’s return to profitability depends on the country reaching an agreement with euro-area creditors.

Eurobank’s deposits dropped about 15 percent in the first quarter to 34.9 billion euros. National Bank said in its annual report that deposits shrank by 4.2 billion euros this year through March 17 while it “retains a liquidity buffer allowing it to navigate through this challenging period.”

National Bank is expected to report a quarterly net loss of 71.5 million euros, according to analysts surveyed by Bloomberg. Alpha Bank will probably report its third straight quarterly loss at 95.2 million euros, a separate Bloomberg survey shows.

The ECB on Wednesday left the level of emergency cash available to Greek banks unchanged at 80.2 billion euros from a week ago, said two people familiar with the matter. Deposit outflows decelerated last week, on expectations that a deal which will avert a Greek default is within reach, the people said.

Still, “pressures are unlikely to ease over the next 12 to 18 months and there is a high likelihood of an imposition of capital controls and a deposit freeze,” Moody’s Investors Service said on May 20, giving a negative outlook for Greek banks.

Greek banks will “likely require additional capital over the outlook horizon” after two rounds of recapitalizations in 2013 and 2014, Moody’s said. Greece’s bailout program has 10.9 billion euros parked at the European Financial Stability Facility to help the banks if creditors are willing to release the funds. This money can only be used for the recapitalizations of financial firms and only if the ECB requests it before the bailout program expires at the end of June.

The FTSE/Athens Banks Index, which measures the performance of banks traded on the Greek Stock Exchange, rose 2.1 percent as of 11:40 a.m. in Athens on Thursday, after a 9.1 percent jump on Wednesday. It has fallen about 58 percent in the last 12 months since the country’s lenders were recapitalized with private funds.

“The Greek government and Greek banks are trapped in a death embrace,” Benedict James, banking partner at global law firm Linklaters, said in an e-mail. The sovereign only appears “solvent because the Greek banks agree to roll over Greek government bonds as they mature, and the Greek banks only do that because they can use the bonds as collateral with the ECB under a facility which only works as long as the Greek government looks solvent.”


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