ECONOMY

Uncertainty grows over local banks

uncertainty-grows-over-local-banks

Greeks and visitors alike are eager to find out what will happen with the banks after Sunday’s referendum, and the signs are that it will be a while before bank branches reopen for normal banking activities, while there is much talk of a possible haircut on deposits on top of the capital controls.

According to the legislative act that introduced a six-day bank holiday and the capital controls, the branches will reopen on Tuesday. However, bank officials say that would be impossible as liquidity reserves are extremely low. Therefore, they take for granted that the special holiday will be extended.

In fact the lack of cash means that banks even doubt whether there will be any euro notes in the cash machines for clients after this weekend. Already many ATMs are issuing 50 euros and not 60 – i.e. the daily limit for withdrawals per account – and there are delays in the restocking of ATMs with banknotes.

It is therefore completely unknown when banks will reopen. If “yes” votes prevail in the referendum and the country quickly proceeds to a new agreement with its creditors, the European Central Bank could rapidly furnish Greece with fresh cash so that banks can open again. An agreement with popular and party political support would also banish uncertainty and worries, which would stem the outflow of deposits.

In contrast, if “no” votes prevail, it is unlikely the ECB will restore liquidity until an agreement is sealed. Without an agreement, cash-strapped banks will not reopen, unless the government proceeds to minting a new currency. However, the country is not at all prepared for such an option, while the government has time and again stated that Greece will not exit the eurozone.

Still, if there really is a hidden plan for a eurozone exit, then according to bank officials the country is set for a social and financial Armageddon.

Even the signing of an agreement and support from the ECB will not put an end to capital controls. As a rule they come to stay for years: In Cyprus, capital controls stayed for two years and in Iceland for no fewer than seven years. In recent months the economy has undergone a major shock, with its credibility dropping to a multi-decade low. For the situation to stabilize and confidence to be gradually restored, it will take a long time and great effort. The imposition of capital controls will have a very serious impact on enterprises and financial activity.

As things currently stand the daily limit to cash withdrawals from ATMs is 60 euros per Greek bank account. If an account holder does not withdraw that amount on one day, it will not roll over to the next, so one cannot expect to take out 120 euros. There are no limits on deposits. Standing orders are served as normal, provided the bank account concerned contains enough money. Debit and credit cards can be used normally and money can be sent from foreign banks to Greek accounts. There is no limit on withdrawals from Greek ATMs using foreign bank cards or credit cards. As for time deposits, they will be automatically renewed if the client has asked for that. For the rest, capital and interest will be transferred to the associated account and the holder will be able to use the cash according to what applies to all accounts.

Crucially, senior bank officials warn that in case of a euro exit, the consequences on bank deposits will be huge. Most economists argue that the new currency would be devalued by at least 50 percent, meaning a similar decline in the purchasing power of deposits. High inflation would also hurt the value of the new currency and of deposits.

In contrast, in the case of an agreement between Greece and its eurozone peers, the credit system would stabilize, although given the damage inflicted on the economy and the banking sector, it would require a fresh recapitalization process. In that case one cannot rule out the possibility of a deposit haircut, although bank officials do not consider that to be likely.

People are also wondering whether they can forward money abroad with capital controls in place. During the bank holiday that will not be possible unless a special license has been granted by the special Banking Transaction Approval Commission for exceptional purposes. This commission, set up at the State General Accounting Office, is examining all requests submitted at the banks’ call centers. Banks forward the requests to the commission, which approves all or part of the amounts applied for forwarding abroad, provided they are deemed necessary for the preservation of public or social interests.

The commission is also responsible for issuing verdicts on applications for money forwarding abroad concerning business transactions. It is only with a special license from this commission that businesses are now able to pay for product imports.

However, concerns have already been expressed about the fact that the special commission consists of just five people, who are swamped with requests for permits that would allow for the payment of imported goods. The process for applying for such licenses is the same, whether it is for enterprises or for money forwarding for health purposes or even for students in other countries.