How Corona affects the Greek financial market

Gsmelling country’s economic life is suffering from new restrictions against the spread of the coronavirus. But the government is still trying to advance the planned reforms for the banks and the financial market. The Greek Deputy Finance Minister in charge, George Zavvos, sees himself on the right track, especially with the restructuring of the banking industry.

The crisis years since 2009 had brought the banking industry three rounds of capital increases, mergers and closings, after which four “system banks” remained. Their capitalization is well above the European average, but this also applies to the mountain of bad loans, which in the summer of 2019 still totaled 75 billion euros, almost half of all loans. With a government guarantee program called “Hercules”, the volume of bad loans is to be reduced by 30 billion euros in one year.

When selling old loan receivables, banks can use a state guarantee for a minimum value of the loan packages for a fee. Despite the Corona crisis, Greece’s banks have so far continued to work on cleaning up their balance sheets. Three of the four system banks have already agreed to participate in the guarantee program, and the fourth is to follow in the next few days.

By the end of 2020, the banking system is expected to show bad loans of only around 15 percent of loans. “The aim is to take the burden off the banks so that they can play their role as a financial instrument for the economy in the future,” says Vice Minister Zavvos. By 2022, he is actually aiming for a loan default rate of less than 10 percent.

Pandemic creates new debts

But new bad loans are on the horizon again. There is speculation about a volume of 5 to 15 billion euros, caused by the Corona crisis. Deputy Minister Zavvos speaks of an expansion of the “Hercules” guarantee program, and the industry is discussing the establishment of a Greek bad bank.

A bright spot for the bankers is a reform of the bankruptcy law approved by parliament at the end of October, with which the bankruptcy procedures for companies are accelerated. The bankers are not entirely satisfied with the definition of the insolvency of private borrowers. What are feared are so-called “strategic defaulters”, customers who, from the banks’ point of view, could actually service their mortgages, but pretend a crisis situation and still keep their house. At least their lives will be made more difficult, according to Athens.

However, economists such as Tasos Anastasatos, chief economist at Eurobank, warn against too high hopes for an upswing financed by bank loans after the corona crisis: Too many companies and private customers cannot currently offer enough collateral to get a bank loan. Others would not even ask because of uncertain prospects. “However, if there is increasing demand for regular bank loans again, there will definitely be enough liquidity,” says Anastasatos.

The outlook is getting worse

The changes in the rest of the financial world are more difficult than in the banking sector. After Italy’s stock exchange merged with Parisian Euronext, the Athens stock exchange Hellenic Exchanges, privatized in 2003, threatens to become a small island with little support for future growth in Greece without international connections. The Athens financial house Euroxx has just reduced the prospects for market capitalization for 2020 and 2021 to 48 to 55 billion euros and the expected company turnover in 2020 to 28 million euros.

During the crisis, trading on the stock exchange was inhibited for a long time by zombie companies on the price list. Now the biggest problems are a lack of liquidity for many smaller titles and the loss of image due to the fraud scandal at the fashion jewelry retailer Folli Follie.

Its shares, named FF Group, were among the standard values ​​of the Athens Stock Exchange, and the founding family Koutsolioutsos were among the country’s model entrepreneurs. But the 1.4 billion euros in sales in the draft balance sheet for 2017 turned out to be a fantasy, the group as over-indebted. The fact that the settlement procedure has not yet been completed and criminal consequences are still a long time gnawing at Greece’s credibility. Vice minister and economics professor Zavvos refers to fundamental changes in company law with stricter conditions for the company organization and a larger framework of fines against auditors. Zavvos now speaks to this newspaper about the need to find international synergies for Athens Stock Exchange. He has also asked all Greek financial institutions for a list of reform proposals.

One way to advance Greece’s economy and stock market would be more privatizations in the coming year. They were previously kidnapped, but the conservative reform government in office since 2019 has a positive view of them. However, one of the projects, the sale of Athens airport, has become difficult during the crisis. The electricity supplier PPC turned out to be in danger of bankruptcy and is being restructured. Privatizations would also boost the stock market.

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