Greece Commercial Banking Report Q1 2009

Abstract

The Greek economy has not been troubled much by the global credit crunch thus far, with GDP growth
coming in at a relatively robust 3.1% year-on-year (y-o-y) in Q308. In addition, its banks are generally
unexposed to the “toxic assets” which have caused such huge losses on the balance sheets of US banks.
However, conditions have deteriorated sharply since October, and we expect the impact to be felt hard in
the real economy in Q408 and throughout 2009. This will expose the country’s structural flaws and
economic imbalances and make attracting inward investment difficult. A key risk is that investors see
Greece as a weak link in the eurozone, putting intense pressure on financial stability and, ultimately, the
wider economy.
Some of our biggest concerns for economic stability lie in significant imbalances in the domestic
economy. Firstly, the country runs a very large current account deficit, 14.1% in 2007, leaving it highly
sensitive to capital flows. In addition, the government’s persistent budget deficits and heavy debt burden
will limit its ability to respond to the downturn. Further to this, Greece has one of the more inhospitable
business climates in the EU, according to our business environment risk ratings. This will make it
difficult to attract investment as international businesses scale back operations.
The government has, in fact, responded to the financial crisis with a EUR28bn injection of liquidity into
the financial system. It hopes to keep credit flowing to small and medium-sized businesses, which
account for a large share of the economy. The state has also guaranteed all deposits in banks. It is too
soon to gauge the impact of these measures, though the initial hesitancy among banks to be included in
the scheme hardly exudes confidence.
This report is being written at a time when the global financial crisis, which arose as a result of the
evaporation of inter-bank liquidity, has moved into a new phase. Stock market participants appear,
reasonably, to have taken the view that the policy responses taken by governments, central banks and
multi-lateral institutions will be sufficient to prevent a total collapse of the global financial system.
Instead, stock market participants are focusing on the impact of a near-global recession on the earnings of
non-financial companies.
The number and size of stand-by facilities agreed by the IMF since early October supports our view that,
of the emerging markets whose commercial banking sectors are surveyed by BMI, the countries of
Central and Eastern Europe are those whose economies are most at risk of suffering adverse affects as a
result of the global financial crisis. This is partly because the macroeconomic imbalances are relatively
severe and partly because the Central and Eastern European countries are more directly affected by the
brutal recession that is unfolding in wealthier member states of the EU.
As yet, it has not been possible to collate hard numbers, for most of the countries whose commercial
banking sectors are surveyed by BMI, that clearly quantify the impact of the global financial crisis on the
banks. As we explain in the section that discusses changes that we are making to the report, we again
include a lengthy essay which attempts to identify the key issues. In essence, in the emerging markets –
and, indeed, the developed countries – of the Asia-Pacific, commercial banks appear well placed to deal
with the crisis. The same is, broadly, true of commercial banks in the various countries of the Middle East
and North Africa. Latin America, Chile, Brazil, Mexico and Colombia appear better placed than
Argentina, Venezuela, Bolivia and Ecuador. South Africa’s situation appears to have much in common
with that of Brazil. In contrast, Nigeria faces some of the same challenges as those that confront
Venezuela. The positions of most countries in Central and Eastern Europe, however, are alarming.
From Q209, we will include data that pertains to late 2008 and extend forecasts out to 2013. We will also
incorporate much greater discussion of the various protagonists in each country’s commercial banking
sector and a number of new features. We believe that the figures we compiled in mid-2008 provide
insights as to how the various commercial banking sectors will fare in the current, extremely uncertain,
climate. We have, therefore, left them essentially unchanged.
The figures on the tables above provide a snapshot of the banking sector in Greece prior to the onset of
the global financial crisis. To place the figures in context, it may be useful to bear in mind certain aspects
of the 59 countries whose banking sectors are currently surveyed by BMI. Across this sample, the median
growth in assets in local currency terms was 21.3% (in Colombia), the median loan growth was 21.6% (in
India) and the median growth in deposits was 17.9% (in Brazil).
On their own, the ratios of loans to deposits, assets and GDP mean little. However, they can provide
useful hints when combined with other data. Across the 59 countries, the median loan/deposit ratio is
92.3% (in Greece), the median loan/asset ratio is 56.0% (in Poland) and the median loan/GDP ratio was
63.9% in India.
As in previous reports, we include a SWOT analysis for Greece. We suggest that the two most important
strengths of the Greek commercial banking sector are the opportunities for growth and the solid
regulatory framework. Against this, there are weaknesses such as the exposure of the economy to the
global economic downturn (recession) and the high current account deficit of Greece.
Since Q108, we have calculated, on a consistent basis, a Commercial Bank Business Environment Rating
(CBBER) for each of the 59 countries surveyed. The CBBER includes an assessment of the limits of
potential returns. It does this by taking into account the size, growth potential and bancassurance potential
of the banking sector, as well as aspects of the economy in 2007. The CBBER also depends on an
assessment of the risks to the realisation of potential returns. This reflects BMI’s assessments of overall
country risk, together with the regulatory and competitive environment.
Greece’s overall CBBER is 66.9. The banking market structure elements of the limits to potential returns
have a slightly higher score than the country elements, with scores of 66.9 and 64.0, respectively. The
banking market structure elements of the risks to the realisation of returns have a significantly higher
score than the country risk rating, with respective rates of 86.7 and 64.5. For all the macro-economic
problems, we assess Greece as having the highest CBBER in Central and Eastern Europe.