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Tuesday, November 14, 2017

The Incredible Shrinkage Of The Greek Banking Sector

The Greek banking sector has undergone massive changes since the crisis culminated with the First Memorandum in the spring of 2010. The tables below show how the aggregated assets, liabilities and equity of all Greek banks (excluding the Bank of Greece) developed between June 2015 and September 2017. It should be noted that these are aggregated (and not consolidated) figures, i. e. there may be significant overstatements of assets and liabilities. The equity should not be overstated. Source of the figures is the Bank of Greece.


AGGREGATED ASSETS
Jun 2015 Sep 2017 Change
(BEUR) (BEUR) (BEUR)
Loans to banks 116,4 15,0 -101,4 -87%
Loans to non-banks 281,0 195,4 -85,6 -30%
Debt securities 78,2 41,1 -37,1 -47%
Equities 18,7 8,6 -10,1 -54%
Remaining assets 50,4 55,6 5,2 10%
-------- -------- -------- --------
Total assets 544,7 315,7 -229,0 -42%

Total assets declined by 42%! To say that total assets in the Greek banking sector were cut in half would be an exaggeration, but not by much! 229 BEUR of assets went away!

The largest decline was in interbank loans which declined by 101 BEUR. This is an understandable development: Greek banks had been active in the international interbank market (most of these interbank loans were to foreign banks) and as liquidity became tight, the Greek banks ran down that portfolio. Still, assuming that interbank lending was profitable for the Greek banks, the near-elimination of that portfolio must have impacted the banks' earnings potential.

The bulk of the loan portfolio of Greek banks represents loans to Greek non-banks (i. e. regular private and corporate customers). This segment accounted for 72 BEUR of the decline in loans. Loans can decline for one out of three reasons: (1) because they are repaid; (2) because they are sold off to investors; or (3) because they are charged off. I would be surprised if a very large portion of the decline in loans was due to repayments because loan repayments typically slow down in a crisis.

The only category which increased during this period was 'remaining assets' but the BoG does not provide any details about that.


AGGREGATED LIABILITIES & EQUITY
Jun 2015 Sep 2017 Change
(BEUR) (BEUR) (BEUR)
Debt to Bank of Greece 94,3 41,7 -52,6 -56%
Debt to other banks 75,8 18,9 -56,9 -75%
Deposits 294,9 156,7 -138,2 -47%
Securities issued 15,0 2,1 -12,9 -86%
Other liabilities 26,8 21,8 -5,0 -19%
Capital & Reserves 37,9 74,5 36,6 97%
-------- -------- -------- --------
Total liabilities & equity 544,7 315,7 -229,0 -42%

The decline in the debt due to the Bank of Greece presumably represents the reduced dependance on ECB funding. A deposit decline of 138 BEUR, or -47%, speaks for itself. Of that decline, 94 BEUR were in the category of regular domestic deposits and another 19 BEUR were in the category of deposits from foreign countries.

As regards positive news, capital & reserves in the Greek banking sector almost doubled from 38 BEUR to 75 BEUR. When total assets shrink and equity increases, it has great beneficial impacts on the leverage in the system.

5 comments:

  1. And in spite of the drop in "loans to none-banks", 100 BEUR are still NPE's, just as they were at the start of 2016. What are they valued at in the above??
    Lennard.

    ReplyDelete
    Replies
    1. My understanding is that when they talk about 100 BEUR being non-performing, they are talking about book value, i. e. if the books show 200 BEUR, half of it would be non-performing (even though the non-performers may already have been written down in the past).

      Delete
  2. Klaus, yesterday i watched a documentary from 2013 about a German investment banker. It was quite interesting, but also a bit frightening towards the end.

    While watching it I wondered what you might say. It will be available online till Nov. 23.

    https://tinyurl.com/Banker-Master-of-the-Universe

    *******
    Greece shortly surfaces about 100 minutes in. Reminded me of a book by Ioannis Glinavos, I doubt I completely understood. But the idea that one can make money out of state's financial troubles I always vaguely grasped.

    https://tinyurl.com/market-state-relationship
    https://iglinavos.wordpress.com/

    Barbara/LeaNder

    ReplyDelete
    Replies
    1. I remember watching that documentary at the time and I thought it was rather spot-on. This is obviously a documentary about the world of global banking. Volumewise, this world probably accounts for 80%+ of all banking worldwide. Peoplewise, I would suspect that it is only a small minority of all bank employees worldwide. Most of the worldwide bank employees work in local or regional banks where the primary business still exists of taking in deposits and making loans, i. e. of 'normal' banking. I would suspect that none of the Greek banks would meet the criteria of global banking as described in the documentary.

      The best book I have ever read about today's global banking is "The bankers' news clothes" by Admati/Hellwig.

      Delete
  3. thanks, I'll take a look at it. Although the topic is depressing. ...

    My bank recently merged with another one. But yes, I am well aware that the people there are different. But the pressure on them might be getting bigger too.

    ReplyDelete