Credit growth stifles banks

The fast pace of credit expansion is proving a headache for commercial banks, which are scrambling to find capital in order to finance enterprises and households. International banking markets offer a wealth of financing products. Some of them, such as special securities issues and securitization of loans are still novelties in Greece but are among the most widely used instruments in other countries. EFG Eurobank Ergasias will soon provide its own securitization of loans worth 750 million euros. Piraeus, Alpha and National banks will follow soon afterward. The big fall in interest rates over the past few years has sparked an explosive growth in loans, especially consumer and housing ones. The same fall in rates has negatively affected deposits, which are, however, the base upon which banks can draw for their loans. Already, in four of Greece’s «big five» banks loans exceed deposits (excluding repos). Only National Bank, Greece’s largest, can count on a huge depositor base. Bank net profits after dividends and taxes are not high enough to cover their financing needs. At the same time, the situation on the Athens Stock Exchange, where despite more than a year of recovery after three-and-a-half years in the doldrums the market is still not strong enough, does not allow banks, and other investors, to raise capital at low cost. Also, banks have to worry about increased capital needs to finance their expansion into neighboring markets as well as provisions to finance their employees’ pension funds. Banks can also take advantage of modern financing instruments to improve their financial results. After the growth of housing loans, the average duration of banks’ claims has significantly increased. Thus, in order to operate more effectively, banks are trying to improve the duration of capital they draw in order to bridge the lag between long-term claims from loans and short-term liabilities to depositors. National Bank: National’s huge pool of depoisits is the envy of the other banks. National is the only one among the «big five» that does not worry about financing its retail banking operations. Indeed, the big challenge to the bank’s management is to mobilize the personnel in order to take better advantage of the institution’s high liquidity. National plans to issue a small loan securitization package – about 500 million euros – chiefly to train and familiarize personnel with the technicalities of securitization. Alpha Bank: Even though Alpha’s deposits, excluding repos, account for just 48 percent of National’s, Alpha is challenging National for first place in loans provided. The bank is a pioneer in introducing new financing instruments. It was the first one to introduce hybrid instruments in 2002, for example. The absorption of subsidiary investments has strengthened its capital base significantly. With loans already exceeding deposits by far, Alpha is preparing to securitize housing loans in order to boost liquidity and further finance retail banking operations. EFG Eurobank Ergasias: It’s the first big bank to go ahead with the securitization of housing loans. Still, this issue, which accounts for just 4 percent of the loans the bank provided during March alone, is not seen as sufficient to cover its medium-term financing needs. Emporiki Bank: The bank surprised many during the first quarter by increasing its credit provision by 18.6 percent. Despite this, Emporiki has lost ground to its competitors over the past few years. Its new management, however, is optimistic that it can mobilize the work force to seek a higher market share, increase liquidity and raise the capital adequacy ratio. Piraeus Bank: Its credit provision has soared, but managers believe that it must also improve its liquidity in order to keep pace. A securitization is on the cards.