Just when you thought it was safe to go back into the Aegean…
The Greek sovereign is already covered by its bailout and has made a (fairly good) start on fiscal austerity (so far) — but the story has just begun for Greek banks.
As Lombard Street Research’s Jamie Dannhauser noted on Monday:
Over the last year, the cumulative loss of deposit accounts has totalled €21bn – a staggering 7½% decline compared with April 2009. On the asset side of the balance sheet, there has been almost no growth in loans to the private sector; but Greek banks have been aggressively hoovering up Greek government debt (their holdings hit €44bn in April from €32bn six months earlier).
Add to that support for foreign subsidiaries, and Greek banks have had more and more recourse to central bank funding, Dannhauser says — as the chart shows:
And for Dannhauser, that means Greek banks were heading to a make-or-break situation as of the end of April (emphasis FT Alphaville’s):
…BoG lending to the banks was €90bn, with €123bn of assets pledged as collateral. If so, we are rapidly approaching the point of no return for the banking system. Bank of Greece data show that resident-Greek banks held securities on their books totalling €102bn in April. Of this, only €48bn was sovereign debt, with a significant chunk comprised of retained securitisations. Even assuming optimistically that all of these securities are eligible for repo at the ECB, it seems highly probable that Greek banks have already resorted to funding against their loan book. Shut out of the interbank markets and unable to issue medium and long-term debt at reasonable cost, one can only describe the funding position of the Greek banking system as precarious.
Now, April was the height of the Greek debt crisis. Even so, Credit Suisse’s Niall O’Connor notes the same problems facing the country’s banking system:
We see the Q1 2010 results for the Greek and Cypriot banks as marking the early part of a set of trends in Greece: falling NIM, rising NPLs and negative loan and deposit growth. GGB holdings have continued to increase as a proportion of TNAV: partly due to more purchases, but also partly due to TNAV declines in Q1 2010. ECB borrowing has increased on the other side of the balance sheet, both to compensate for increased GGB holdings and also to make up for falling deposits.
Indeed, Greek banks’ borrowings from the ECB are largest in proportion to their balance sheets than any others in Europe’s banking system, O’Connor says:
While GGB bond-buying by some Greek banks is set to increase:
A few banks have also announced some further purchases of GGBs in Q2 (EFG €1bn and Alpha €400m in particular), and TNAV will decline for most of the banks again on our forecasts due to AfS losses on GGBs, so the ratio will continue to rise, on our estimates. We believe that this high exposure as a proportion of TNAV—up to 3.4x Q1 2010 TNAV for NBG—is the issue most preoccupying investors’ minds.
Goodness. It’s almost as if investors are concerned about the effects of a possible sovereign debt restructuring in the future.
(Full Credit Suisse note in the usual place.)
Related links:
The tipping point for Europe’s banks – FT Alphaville
Who’s exposed to Greece? (III) – FT Alphaville
Moody’s cuts nine Greek banks – FT Alphaville