Alpha Bank tackling NPLs and ‘turning the page’
Alpha Bank’s management has designed a strategy to reduce nonperforming loans and transform the group so that it can “turn the page,” the lender’s CEO Vassilis Psaltis tells Kathimerini, stressing that the Greek economy is on a steady growth path and that the international investment community is regaining faith in the country’s prospects.
Psaltis notes that the time has come to make up for the ground lost during the crisis, explaining that Alpha Bank will be at “forefront of this national effort, securing credit to households and businesses of 14 billion euros by 2022.”
A few weeks ago you introduced Galaxy, the largest portfolio of NPLs in Greece to date which is set for securitization in 2020. With the Hercules mechanism now available, what will the bank’s next moves be?
The Galaxy plan reflects Alpha Bank’s commitment to leave the problems of the crisis behind and “become a bank once again,” reasserting its leading role as a financier of households, businesses and the Greek economy. This is not just the most significant securitization of nonperforming exposures in Greece, but the third largest in Europe. It is a transaction that allows us to reduce the NPE rate from 44 percent this year to below 20 percent in 2020 and eventually to a single-digit rate in 2022. The percentage of NPLs in default for more than 90 days will fall below 5 percent in 2022.
We are decisively proceeding to a cleanup of our balance sheet in order to devote all our energy to what we are doing really well, which is banking and financing the economy. And we are doing it now, not only because we have the experience and capital strength to aim high, but also because three crucial conditions are now being met: Supervisory authorities are urging similar initiatives, a dramatic improvement in macroeconomic figures has been recorded, one that brings our country to the very center of investment interest, and thirdly, Hercules, the Greek asset protection scheme, has been activated.
What is the size of the new Alpha Bank that will arise in 2020, and when are the benefits of the transformation expected to become obvious?
We are deleveraging the most problematic part of the loan portfolio, as it burdens the results with high impairment every year. The decrease of provisions after the implementation of Galaxy is the most important factor in improving results in the coming years. This is an element of diversification from the European banking industry, where credit risk cost in several countries is already at very low levels, namely at around 20-30 basis points, whereas in Greece these costs can reach 200 basis points due to provisions.
Galaxy is just one of the pillars of the strategic plan we are implementing to turn the page at Alpha Bank. The other pillars include the transformation of our operating model, customer-centric growth and, of course, our commitment to a corporate governance model that embraces best practices. All in all, this will be implemented through 30 initiatives aimed at the enhancement of the bank’s profitability, digital transformation, the adoption of innovative management practices and, overall, the emergence of a new operating culture, in order to place our customers’ needs at the center of our attention again.
On which pillars will Alpha Bank’s estimated profitability be based, given the loss of significant revenues from interest income and the environment of low interest rates?
It is a fact that negative interest rates burden the profitability of the industry. All across Europe, more and more banks are proceeding to a revision of their operating model, aiming to improve productivity and streamline expenditure by utilizing the possibilities offered by technology. We also put great emphasis on this area, while pursuing the simplification of our processes to become faster and more efficient. Our Digital Transformation plan, implemented in 2017 and ongoing, revolves around enhancing our digital infrastructure and familiarizing our customers with new technologies. The response from our customers has been particularly positive: The annual growth is more than 50 percent for active users of mobile banking and 25 percent for web banking.
Of course, negative interest rates are not only a problem; they also constitute an opportunity. This is because the pursuit of returns in a negative interest rate environment makes it imperative that our customers’ savings be effectively managed. The penetration of investment products in the Greek market is considerably low, at just 6 percent of total funds under management, compared to 40-50 percent in the eurozone. This is also an area where we have built important infrastructure in order to be able to deliver high-quality services and products.
A significant number of the bank’s employees are to be transferred to a new servicing company for NPLs. In combination with the voluntary separation scheme that has been completed, is this reduction enough to achieve the objective of reducing operating expenses?
At Alpha Bank our human resources are not treated one-dimensionally as a cost parameter of the group’s operating expenses. Such a perspective would be exceptionally unfair and catastrophic business-wise, especially when talking about the thousands of people who have contributed decisively to securing our bank’s leading position.
Nevertheless, at the same time, at the regulatory level, both through the European Central Bank’s directives on securitization and the Hercules program, the bank’s choice of managing its NPLs through an independent servicer is a one-way street.
Therefore, what can we do for our staff who will be transferred to the new company? First of all, we fully guarantee all their rights, income, insurance and benefits. This is a matter of principle for us. Second, we ensure the long-term viability of the scheme by creating the largest servicer in the Greek market, which will potentially manage a total of 27 billion euros in claims. Last but not least, we maintain an organic relationship with the new venture as our strategic partner, through outsourcing to it an additional 7 billion euros in core NPEs. That is, we are constructing a framework to make clear to our colleagues that they will continue to do the same job they are doing today, with the same role and privileges, within a strong entity. Yet we are only in the early stages of this journey and, as our plan is implemented, we will respond to any concerns that might arise.
Greek economy’s growth potential steady, international investment trust returning
Do you believe that Alpha Bank can assume its role as financier of the economy? What are the areas where your strategy is focused?
The time has come to make up the ground lost during the years of the crisis and we at Alpha Bank are at the forefront of this national effort, securing credit to households and businesses of 14 billion euros by 2022.
We always act with a view to supporting sustainable development, innovation and entrepreneurship, strengthening Greek businesses so they can compete in the international arena and, of course, financing investments with strong multiplier effects both economically and socially, such as infrastructure, energy and innovative projects in the real estate sector.
What is the impression that you get of Greece and its economy from your contacts abroad? Are the estimated growth rates sufficient to support recovery and employment, especially with the European economy displaying aspects of fatigue?
Indeed, the environment abroad is more volatile and certainly less favorable in relation to previous years, as we can observe a slowdown of economic growth in the eurozone, escalating trade protectionism and geopolitical tensions in our wider region. However, the Greek economy maintains steady growth potential and the international investment community is regaining its trust in the country’s prospects. The main factors contributing to this growth potential are: first, the adoption of a mix of growth-friendly fiscal policy and attraction of investment, which at the same time includes significant social protection measures; second, the intensification of reform efforts aiming to enhance structural competitiveness; and, third, the moderation of uncertainty in a stable political environment that, in my opinion, is required for the long-term planning of economic policy.
Nevertheless, we are at the beginning of the road. We should not forget the burdens we inherited from the prolonged financial crisis, such as the significant investment gap, the consequent low productivity, high public debt and a large percentage of NPLs. Also the demographic problem, which was aggravated by the brain drain. Meeting these challenges has been set as a national objective and it is extremely positive that substantial initiatives are being taken in this direction.
You mentioned the brain drain. How do you feel you can help at a time when all banks are reducing staff numbers?
Let’s be honest: The thousands of Greeks who fled the country did so because, on the one hand, they couldn’t find work during the crisis and, on the other hand, because of the lack of meritocracy.
My main goal is for Alpha Bank to become a pole of attraction for the best people in Greece and a gateway for the return of young and capable professionals that the crisis has pushed abroad. We wish to offer the Greeks of the diaspora a truly competitive proposal so that they return and become the protagonists of our homeland’s development.
At Alpha Bank, we have created the conditions to restructure our human resources through a well-designed and targeted voluntary separation scheme that has received a great response.
A few months ago, we completed a large internal survey on the bank’s organizational performance, to which more than 6,000 colleagues responded openly – and, believe me, sometimes highly critically. Over 9,000 comments and observations were gathered, based on which we designed crucial parameters of our business plan for the new Alpha Bank. Thus, based on this willingness of our colleagues to be actively involved, we are building a new culture that rewards performance, reinforces innovation and provides opportunities to younger generations. And, above all, it supports and relies on meritocracy.
Criticism of fee policy and other charges
Banks have come under fire from public opinion for their fee policy. In your opinion, what is the right balance in terms of charges?
Some days ago, the chairman of the ECB’s Single Supervisory Authority, Andrea Enria, pointed out that Greek banks are working hard to return to profitability in order to play their role as financial pillars of growth. He added that in the second quarter of 2019, the contribution of fees and commissions and charges to the operating income of Greek banks was less than half of the corresponding contribution to banks in other countries which implement similar business models.
It is indeed a delicate matter that involves the financial state of many of our fellow citizens, the reasonable willingness of the government to take into account what is happening in society and, of course, the constitutionally guaranteed right of an independent authority to conduct audits.
However, one must not forget that our business decisions ought to obey the basic principles of finance, which require covering the investment costs that have been incurred in building up digital infrastructure and in particular in alternative networks. While in 2017 we issued 5,000 new passbooks every month, the number today has been limited to 400-500. This illustrates that our customers are not only adapting to the new era, but also recognizing the opportunities provided to them by modern digital services.
And this is the picture of progress that powers my own vision too: to free branches in the future from everyday transactions, so that all our energy and time can be channeled toward offering innovative services and products that will create value for our customers.
And I want to add one more point: Digital banking certainly aims to speed up and facilitate all of our transactions, but it also plays a crucial role in boosting electronic transactions, acting as a considerable public infrastructure in the fight against undeclared economic activity and tax evasion.
