Greek Banks To Submit Liquidity Plan By Friday - Bank Officials
April 05 2011 - 10:51AM
Dow Jones News
Greece's government has given the country's cash-strapped
lenders until Friday to explain how they will finance themselves
over the next two to three years, bank officials say, a move many
fear is the first step towards tightening their access to easy
European Central Bank funding.
The need to put forward medium-term liquidity plans comes as the
government prepares to extend a further EUR30 billion in loan
guarantees to the banks--the latest infusion in a two-year old,
EUR60 billion support program--that are now heavily dependent on
the ECB for their cash needs.
So far, the government hasn't set any further conditions on that
aid, apart from the liquidity plans. But senior officials at
Greece's four leading banks--National Bank of Greece SA (NBG), EFG
Eurobank Ergasias SA (EUROB.AT), Alpha Bank (ALPHA.AT) and Piraeus
Bank SA (TPEIR.AT)--say it is a matter of time before that
happens.
They say that could include conditions to cut lending and sell
assets in an effort to make the banks more self-reliant on their
core, albeit shrinking, deposit base and less so on the ECB.
"The banks have been required to submit a draft liquidity plan
to the Finance Ministry by the end of this week," said a senior
official at one of Greece's big four lenders.
"I don't have many doubts that [those plans] will be subject to
quarterly reviews. The question is whether the plans will be
acceptable or will come with conditions?" he said. "And if we don't
make our targets, will we be asked to sell assets? I fear that may
happen."
Since the start of the Greek economic crisis in late 2009, Greek
banks have been hit by a double blow that has squeezed their
liquidity and made them increasingly reliant on cheap ECB funding
to survive.
On one hand, the banks have seen a steady outflow of deposits
that totaled about EUR40 billion last year and represented about
14% of all Greek banking system deposits combined. On the other,
the Greek banks' heavy EUR55 billion exposure to Greek government
bonds--now rated at junk status by the world's three leading
ratings agencies--has effectively frozen them out of interbank
market.
As a result, Greek banks have had to increasingly turn to the
ECB for their cash needs. According to the latest data from the
Greek central bank, Greece's lenders borrowed EUR97.7 billion from
the ECB in December, almost double what they borrowed a year
earlier.
But the ECB is growing uncomfortable with that dependence,
especially alongside the growing demands of Irish and Portuguese
banks who have also been tapping ECB funding. Amid those concerns,
many analysts expect the ECB to roll back some of its easy money
policies at its next governing council meeting on Thursday.
"The ECB clearly has some concerns about its exposure building
over time to the Greek economy," said the Greek bank official. "And
the level of concern is increasing as the amount of lending to the
Greek banks increases."
To be sure, individual Greek lenders have made efforts in the
past year to cut, or at least restrain, their cash demands on the
ECB. In February, for example, Greece's second-largest lender by
assets, Eurobank, sold a 70% stake in its liquidity-dependent
Polish operations to Austria's Raiffeisen Bank International AG
(RBI.VI) in a move to save itself some EUR2 billion a year in
cash.
Likewise, state-owned and deposit-rich Hellenic Postbank (TT.AT)
says it could cut its dependence on ECB funding to zero this year,
down from a EUR5 billion peak in May 2010.
Even so, the ongoing recession in Greece means that the stock of
deposits in the Greek banking system is expected to shrink by
another 8% this year as individuals and businesses tap savings to
cover their cash needs.
As a result, say bank officials, the need for liquidity will
remain, if not grow, in the year ahead. That means the banks will
need to be more aggressive in cutting their liquidity needs to
convince the ECB, they say.
Although the details will vary from bank to bank, in practice
the banks effectively have two choices: scaling back lending, or
selling off assets such as their fledgling foreign operations where
there is a gap between deposits and loans.
"The message is clear: there won't be further ECB financing
without conditions. It's a new regime that is coming with tighter
conditionality standards," said a senior official at a second Greek
bank. "And if the banks can't reduce their liquidity dependence on
their own, they will be forced to by the ECB."
-By Alkman Granitsas, Dow Jones Newswires; +30 210 331 2881;
alkman.granitsas@dowjones.com