ECONOMY

The crisis is here but the worst is over

About a year since the first signs of problems in the servicing of housing loans in the USA appeared, leading to the present global credit crunch, the big question of when the crisis is going to end remains unanswered. It seems that the domino effect has not yet exhausted itself. Bank chiefs believe that we have seen the worst as regards losses and big writedowns due to the subprime crisis. The big questions concern the day after and the breadth of the secondary effects of the crisis: How will the world economy be affected? What will be the impact on the emerging economies of Southeastern Europe, where Greek banks have made a considerable investment? Which economic sectors will take the brunt of the new realities, and what will the impact be on the profitability of banks? «The new environment in the credit system will impact the profitability of banks. However, the picture regarding the strength and breadth of the effects is hazy and, therefore, the uncertainty remains as to whether current valuations have incorporated this new reality. It is likely that the overall violent fall has undervalued sectors or companies that are in a stronger position and overvalued others in more difficult positions,» says Anthimos Thomopoulos, a member of National Bank’s executive board. Senior Greek bank officials on the whole are taking the view that the process of evaluation of asset losses as a result of the crisis has largely been completed. No further major surprises are expected. They also believe that additional capital requirements have been already priced into share valuations, through capital increases in sectors and countries affected by the subprime loan crisis. And, finally, the secondary effects on economies, businesses, the rate of credit expansion and bank profitability remain to be seen. «The duration of the credit crisis is intertwined with the duration and depth of the subprime loan crisis and recession in the USA. But the crisis has coincided with unprecedented hikes in the prices of oil, raw materials and farm products, which intensify recession forces, also creating short-term inflationary pressures,» notes Michalis Masourakis, Alpha Bank’s director of economic studies.