Balkan states brace for banking contagion from Greek drama

If Athens defaults on its international debts, Greece’s ex-Communist neighbours will run a risk of contagion transmitted via the Greek-owned lenders which control large chunks of their banking sectors.

Officials in Albania, Bulgaria, Former Yugoslav Republic of Macedonia (FYROM), Romania and Serbia say they have, in essence, quarantined the local banks by cordoning off their capital so even if the Greek parent collapses, the subsidiaries will survive.

But they cannot cordon-off depositors: if a crisis in Greece prompts panicky customers to withdraw their cash from Greek-owned banks elsewhere, the results will be unpredictable.

“It’s not good when there is a fire in your neighbor’s house,” said Levon Hampartzoumian, chairman of the association of banks in Bulgaria, though he said he did not see any direct threat from Greece.

The Balkan countries which are at risk have small economies, but they also have a history of financial fragility, so a spillover from Greece could have an outsize impact on them.

With the deadline for a deal between Athens and its creditors looming and withdrawals from banks in Greece exceeding 1 billion euros a day, the Greek central bank governor has told bankers to brace for a “difficult day” on Tuesday.

The same banks now facing a possible crisis at home, such as Piraeus and Alpha Bank, expanded aggressively into the frontier markets of the Balkans before the 2008 financial crisis.

Greek-owned lenders account for about a fifth of the banking sectors in Bulgaria and FYROM, and slightly less in Romania, Serbia and Albania.

Reuters asked central banks in countries with exposure to Greek-owned banks to detail what precautionary measures they had in place. In Bulgaria, Greek-owned banks do not hold Greek treasury papers, and do not tap financing from their parents, Emil Angelov, deputy chief executive of Piraeus Bulgaria, told Reuters in May.

The central bank has the authority to limit the amount of money that can be transferred from the units to their shareholders back in Greece.

“The Greek banks in Bulgaria are separate structures,” Bulgarian President Rosen Pleneliev said earlier this month.

In several countries, legislation is in place preventing parent banks from removing founding capital from their local subsidiaries without the permission of the central bank.

A number of central banks said that, in the past few months, they have beefed up monitoring of Greek-owned banks.

“They have to inform us on a daily basis on all transactions they’re doing with the mother banks. So far we haven’t noticed anything unusual,” said an official at FYROM’s central bank, who declined to be named.

Lubomir Mitov, UniCredit’s chief economist for Central and Eastern Europe, said all channels for contagion had been taken care of, except one.

“We can see a problem only if people rush to the banks to withdraw their deposits,” he said.

There is some nervousness among people whose savings are in Greek-owned banks – though no sign of a bank run.

Orlin Yasenov, a pensioner in the Bulgarian capital, said on Monday that he had withdrawn a quarter of the money he had on deposit in a Greek-owned bank “as a precautionary measure.”

“I have to be cautious because I need money to buy medicines,” he said. “It’s difficult not to worry when we are hearing about all the problems in Greece.”

Other people in Sofia with money in Greek banks said they had no plans to withdraw their deposits.

In case there is a run, central banks in the region have taken steps in the past few years to improve the banking sectors’ capital position and their liquidity.

Romania’s Greek-owned banks have a capital ratio of 17 percent, the country’s central bank said – better than the 10 percent minimum required by the regulator.

Bulgaria’s banks, fresh from an unrelated banking crisis last year, are well capitalised and very liquid, according to an analysis by Standard Bank.

The official at FYROM’s central bank said there were measures in place for a worse case scenario.

“People know their money is safe,” he said. “If Greece goes down, there may be some initial panic, but it will soon calm down.” [Reuters]