Greek lending rates seen to converge with the rest of EU, despite handicaps

Greek interest rates will converge with «the most competitive levels in the European Union» in the next two to three years, National Bank of Greece (NBG) President Takis Arapoglou forecast yesterday. Speaking before Parliament’s Economic Affairs Committee, he said that the current higher Greek rates are due to the weaknesses of the Greek economy and the small size of its banks, noting that Greece’s credit rating suffers because of its high levels of debt and inflation. «A bank cannot gain a credit rating higher than the country’s in which it is based and its rates would have to include the loss to real returns to loans as a result of inflation,» Arapoglou said. But Greek banks’ low credit rating is also due to old non-performing loans, the lack of an effective customer credit risk assessment system due to restrictions on the collection of detailed data, the higher administrative costs involved in efforts to recover non-performing loans and high capital adequacy requirements. «We are forced to tie down 100 euros as capital adequacy for every 100 euros of loans we grant,» he said. Nevertheless, Arapoglou noted that the spread between lending rates in Greece and the rest of the eurozone is just 1.54 percentage points (8.28 percent against 6.74 percent), compared with 4.47 percent in older loans. As regards mortgage loans, the difference is just one percentage point, he added, but admitted that credit card and consumer loan rates are significantly higher due to high management costs and the lack of sureties. He dismissed fears of excessive household borrowing, noting that the percentage of non-performing loans is negligible and, in any case, banks do not wish to play the role of saboteur of the social fabric. «We cannot do any more to protect borrowers, even if we make mistakes in granting loans, borrowers should assume their responsibilities,» he said. ‘High labor costs’ Arapoglou, who is also chairman of the Hellenic Bank Association, reiterated banks’ break from tradition in refusing to hold collective pay pact negotiations with the federation of bank employees union, and suggested that banks are aiming to reduce labor costs per head, now standing at 50,000 euros annually, through changes in labor relations and social insurance provisions. Greek banks today employ a total of 60,000 people. «The established rights of employees are not in question… (but) such labor costs are particularly high under the present conditions of the Greek economy,» he said. Responding to deputies’ questions regarding the legality of banks’ refusal to enter into collective pay negotiations, Arapoglou said, «Nowhere in the European Union are there simultaneous sectoral and corporate contracts.» But, he added, «if it is proved that banks’ stance is in violation of the Constitution, then we shall comply.» Arapoglou recognized that Greek banks’ profitability rises at a rate of 50-60 percent annually but said that about half of this consists of one-off gains and is due to the adoption of international accounting standards and tax benefits resulting from the absorption of subsidiaries. Greek bank profits are in line with elsewhere in the EU, he claimed.