Banks are looking for sustainable investment plans for financing

By Leonidas Stergiou

Banks have both liquidity and capital to lend. On the other hand, the demand for bank financing appears to be declining, but the needs of businesses and households are increasing. Banks have reduced red loans, but these, as a reserve, remain in the economy, limiting the possibilities for new lending. The Greek economy is entering an upward cycle, but inflation is gnawing on disposable income, which especially among young people is very low – almost prohibitive for a home loan without the same participation and help from the family. There is at the same time increased demand for disbursement of mortgages, but also an increase in real estate prices.

The above findings appear contradictory and the discussion with experienced and senior bank executives leads to interesting conclusions. As they report, today there is no sustainable investment plan that has not been financed, either through bank lending or through sponsorships (raising funds from the markets) or through inclusion in co-financed and subsidized programs. Beyond that, greater credit expansion requires attracting investment, reducing bureaucracy and other barriers to entrepreneurship, increasing incomes, and reducing over-indebted businesses and households.

Financing

For 2022, the four systemic banks have provided loans totaling 8-10 billion euros, to businesses and households, in addition to those related to the Recovery Fund. In the first quarter, the funding that has been closed or is in the final phase exceeds 3 billion euros, while the assumptions for raising funds exceed 2 billion euros. In 2021 alone, companies raised 3.8 billion euros from international markets (double the amount from 2020) and another 5.9 billion euros through the Athens Stock Exchange. At the same time, there was bank financing of 12 billion euros, lower by 4 billion euros compared to 2020, but also by 4 billion euros higher than 2019. The reduction of credit expansion in 2021 was a result of the more favorable conditions for the raising of funds from the markets (in relation to bank lending), the contribution of co-financed loans (eg through the Hellenic Development Bank) and the liquidity that had accumulated from the support measures and the pandemic in 2020.

Offer and demand

In the case of small and medium-sized enterprises, they received the smallest share, almost less than 30%, of the total funding. On the other hand, the data of the Bank of Greece, as well as the ECB and the OECD show that there was no demand, mainly due to the support measures, with the main one being the repayable advance. Since the OECD report for 2022, Greek banks have ranked first in the annual growth rate of loans to small and medium-sized enterprises (close to 190%) in 2020, compared to 2019. The repayment rate appears reduced and close to its average OECD. Corresponding data on demand and lending conditions come from the ECB and the BoG, which notes “an increase in the availability of bank credit and an improvement in lending terms and conditions from the point of view of borrowers, while highlighting the favorable role of lending support programs.” “These findings are mainly for businesses – net cash flow to households has remained negative for many years, although both new mortgage and consumer loan disbursements have increased modestly.”

Net financing

The net credit expansion, ie the new loans minus repayments, write-offs and reclassifications (securitizations), has been negatively affected in the last two years mainly due to securitizations. From the end of 2021 and 2022, net financing is significantly lower than new disbursements due to large repayments. Thus, while in 2021 more mortgages (900 million) were disbursed than in 2020 and more than twice as much as in 2019, however, the net credit expansion was negative. This is because in previous years many more mortgages were given, which are currently maturing (expiring). Maturities and repayments exceed new disbursements. For example, the total disbursement of mortgages in 2021 or the forecast for 2020 (1.2 billion) is the net disbursement of a month in 2005.

Red loans

While the banks reduced the red loans from their balance sheets by transferring them to funds and management companies. The total stock of red loans in the economy has not decreased significantly, in order to expand the perimeter of businesses and households that could take out new loans. This is pointed out by the banks themselves and by the Bank of Greece, noting that restructuring, refinancing of sustainable loans, but also acceleration of the new bankruptcy should be done faster. Thus, non-performing loans as a percentage of GDP in Greece are close to 60% while before the crisis it exceeded 100% and already in similar countries such as Portugal this percentage is already at 110%.

Inflation

According to bank executives and the Bank of Greece, inflation creates conditions for increased demand for lending. The first reason is that liabilities are increasing. The second reason is that the real cost of borrowing is declining. As inflation rises, it is not in the interest of capital to remain liquid (negative real deposit rates), so they will have to invest, even with financing. Thus, part of the higher lending rate would be “eaten” by inflation.At the same time, today banks offer loans – business and retail – at a fixed interest rate for the entire duration.

Income

Bankers and ECB studies agree that the previous long and intense financial crisis caused a large income inequality, which is reflected in both deposits and wage data. The crisis has mainly affected young people and the private sector. In fact, this observation is valid not only in Greece, but also in other European countries. An ECB study states that the current generation of 30-year-olds finds it difficult to acquire a home with a mortgage loan, although the supply of financial instruments has increased compared to previous generations. This is because real estate prices have risen more than wages, while the latter start at a low level and rise at a significantly lower rate than in previous generations. On the other hand, the increased supply of loans with low interest rates favors those who have money (older or younger who receive help from the older ones), as a result of which they buy real estate and the prices go up more. As a result, the possibility of acquiring a property by a young person who does not have help from the previous generation is removed.

In this regard, the bankers agree and rely on the data of deposits by age group, as well as the data of transfers or assistance for own participations in mortgages by the family. At the same time, they emphasize that funding is influenced by other demographic issues (population aging, brain drain, etc.). These are issues that need to be addressed at the same time as revenue increases. According to them, there is an urgent need for the Greek economy to return to sustainable positive economic growth rates, in order to increase incomes and give new perspectives to young people. The country can not develop if young people are not motivated to either stay in Greece or return from abroad.

Read also:

* B. Radish at Capital.gr: The challenges are great, but we are used to it

* G. Zanias (Eurobank): Banks are ready to implement their development role

* Γκ. Hardouvelis at Capital.gr: The big question is whether small businesses will be able to grow

* G. Hantzinikolaou (Piraeus Bank): It is crucial that investments in the country are “welcome”