Regaining confidence, bank restructuring key to tackle Greek crisis

Despite the enormous pressure of the Greek debt crisis over the past two years, the Greek banking sector has shown strong resilience and could survive the challenges, so long as confidence for Greek economy is restored and the banking system restructured, experts said. Greek banks have clearly felt the heat. They have suffered from downgrades of their credit ratings by international agencies such as Moody's; they have seen their shares losing up to 80 percent of their value this year at the Athens stock market; and on top of all these, they are also facing a severe liquidity problem. By October this year, deposits in Greek banks had shrank by some 26.4 billion euros (35.71 billion U.S. dollars) to 183.2 billion euros, a decline above 10 percent since the beginning of 2011, John Papadoyiannis, finance news editor in "Kathimerini" (Daily) newspaper, told Xinhua. After Athens was shut out of international funding markets, Greek banks rely heavily on the European Central Bank, he added. In order to safeguard the stability of the Greek banking system, the Greek government has put in place since 2010 a recapitalization program and a multi-billion euro Greek Financial Stability Fund. At the moment the fund has 10 billion euros, and is expected to see its size tripled. In the meantime, the Greek government has encouraged "initiatives to reinforce capital adequacy in the context of the restructuring of the Greek banking system," as Greek Finance Ministry statements repeatedly stressed, pointing to mergers to create stronger entities, more competitive on an international level. So far only one is under way. On Tuesday, Alpha Bank and Eurobank said that the process of their merger announced initially last August goes ahead smoothly with a Qatari company becoming the largest shareholder in the new entity and a capital raise is due next spring. But after the Oct. 27 euro zone agreement this year on the fresh bailout aid to Greece that includes a 50 percent "haircut" on Greek state bonds owned by private investors, the pressure is mounting on Greek banks due to their heavy exposure on Greek bonds. Furthermore, by year end, the banks will be expecting the results of an inspection of their loan portfolios by the American investment management corporation "BlackRock" conducted for the central Bank of Greece on their losses due to the crisis, Papadoyiannis has stressed. According to initial estimates, the total loss could reach another 15 billion euros (20.29 billion dollars). "In coming weeks the Greek banking system will be led strongly to the path of recapitalization. Greek banks need to raise significant amounts of capital to cover losses," noted Papadoyiannis, adding that if they fail to secure funds from private investors, they would be obliged to resort to mergers or the Greek Financial Stability Fund. Up to now only one bank, Proton Bank, entered the Greek Financial Stability Fund process and was nationalized this autumn. More could follow in the coming months. But the most important key to tackle the challenges in the banking sector is to restore confidence in the Greek economy, analysts stressed, by promoting structural reforms in the entire economy. "The faster the Greek government implements the structural reforms agreed with its partners, the sooner the exit door of the dark tunnel will be reached. Greek economy may rebound beyond expectations if confidence is restored," Greek Financial Stability Fund head Panagiotis Thomopoulos said, addressing an economic forum recently. "The ball is on the politicians'side," he said. "The acceleration of structural reforms is the only way to kick start the economy, restore confidence and overcome challenges for all sectors. There are ways, but the government has to act quickly," Professor Joseph Hassid, chairman of the Department of Economics at the University of Piraeus, told Xinhua, expressing optimism for the future, if necessary steps were made.