Crucial week for bank pension fund issue

Today’s scheduled meeting between Greece’s top bankers and the Federation of Bank Employee Unions (OTOE) is likely to make or break a plan to integrate the sector’s separate social insurance funds and finance banks’ unfunded liabilities toward them. The plan, authored by Piraeus Bank President Michalis Sallas, envisages the transfer of all bank employees’ main pensions to the state-run Social Security Foundation (IKA) and the unification of all auxiliary funds into a single entity, to be funded by roughly equal government and bank contributions of 2 billion euros each. Banks’ total unfunded liabilities toward their 11 individual auxiliary pension funds are estimated at about 4.7 billion euros. Even though Bank of Greece governor Nicholas Garganas said after a meeting with the Hellenic Bank Association yesterday that he found «converging views» among bankers on the plan, Takis Arapoglou, the president of National Bank, the country’s biggest, told Bloomberg’s news agency that the bank has no legal obligation to meet the actuarial deficit of its auxiliary fund and does not intend to assume it. In any case, further progress depends on the agreement of OTOE, which has welcomed the plan as a basis for discussion but has set a number of conditions for agreement, notably that adequate funding is found for the transfer of the main pensions to IKA. This is considered especially difficult as the proposal includes significant changes to the present regime. The issue is pressing as, according to the International Financial Reporting Standards (IFRS), which will have to be adopted as of January 1, banks will need to write down their unfunded liabilities on their balance sheet. These liabilities are so large in some cases that a number of banks, especially Emporiki, will find their capital base seriously dented. A third partner to any solution is the government, which has so far urged banks and unions to come to an agreement and said it will contribute financially in proportion to its shares in a number of banks. The Bank of Greece has already adopted measures with a view to boosting banks’ capital adequacy, doubling the sums they can raise through hybrid loans. Also, the right of banks to value readjust their fixed capital provides them with yet another cushion against their insurance liabilities in view of the adoption of IFRS. Even so, Emporiki’s case is considered serious enough to require drastic measures. Economy Minister Giorgos Alogoskoufis is due to meet OTOE again tomorrow.