BoG chief warns of Balkan risks

Bank of Greece (BoG) Governor Giorgos Provopoulos expressed his worry about Greek banks’ investments in the Balkans, in a letter sent to the European Commission last week. He argued that despite the strong capital position of the local credit institutions, the considerable problems faced by the countries in Southeastern Europe could affect Greek banks and then the local economy. The recent worsening of the economic situation in neighboring countries has sent shock waves through their bank systems. The drop in economic activity in those states could cause Greek banks to channel more capital to their subsidiaries in those countries, resulting in an inability to respond to the requirements of their activities in the Greek economy (supporting credit expansion). In the above cases, added Provopoulos, it is important to make sure that Greek banks will have adequate capital to avoid any risks that may emerge, he said, in support of the government’s proposed bank package of 28 billion euros. Kathimerini understands that a BoG official and others from the Economy Ministry went to Brussels last Thursday to discuss the bill about banks and its necessity. The letter from Provopoulos comes as a response to 24 questions from the European Commission regarding the bank plan’s details that were deemed unclear. The BoG governor also argued that the crisis has led to the freezing of the interbank market and has increased banks’ dependence on the financial support of the European Central Bank. The danger of the crisis has an increased effect on broadening the spreads of interest rates, which is likely to lead to a major reduction in the loans issued, further slowing down the economy’s growth rate.