G. Zanias: Banks are ready to implement their development role

The issues of fiscal and monetary policy, the “red” loans and the next day after the Greek banks became “good banks”, but also the banks and the role they will play in the efficient distribution of funds, were at the center of the speech. of George Zanias, Chairman of the Board of Eurobank at the Delphi Economic Forum.

The speech of Mr. Zanias in detail:

Fiscal & monetary policy

For the last almost one and a half decades, the crisis situation has tended to return to normal. The first two (international financial and debt crisis) have more endogenous characteristics while the last two (health and geopolitics) can be considered mainly as exogenous for Greece and Europe.

As is usually the case in crises, the role of the state is increasing, mainly through fiscal policy, as well as the role of monetary authorities. The latter, in the case of the Eurozone, seem to have matured through the multiple crises and, especially in the case of the health crisis, acted with great “firepower” but also effectively. This enhanced role was aided by the symmetry of the crisis, ie it concerned all the Member States of the Eurozone, while there was no issue of moral hazard.

Recent developments on the inflation front, however, due to supply chain problems and the energy crisis, have put monetary authorities in a dilemma, as on the one hand there must be some restriction on monetary expansion and on the other hand a new debt crisis must be avoided. as abandoning quantitative easing and raising interest rates will lead to an increase in government borrowing costs. The dilemma of the monetary authorities is reinforced by the fact that such is the mixture of the causes of current inflation, ie it is not due to overheating of the economy but to supply-side shocks, which the effectiveness of monetary policy measures may not have the desired Results. The reasons for intervention, of course, increase if inflation expectations are significantly affected and the inflation-wage spiral known from the past begins to emerge, which has not yet been activated to a worrying degree.

But because current inflation and especially energy costs affect the real disposable income of households, fiscal policy has a role to play here as well to mitigate the decline in real incomes, to avoid some social problems and the worst in the economy. However, the margins in this case have been limited due to the fiscal generosity that existed in the context of the health crisis, and of course saved the country from the worst, but also due to the very high public debt in the case of our country. Therefore, any budgetary benefits must be targeted where there is a real need. Also, the return to fiscal discipline in the case of our country is needed for two additional reasons: first, we must be in the investment stage when the “crutches” of the ECB stop, and second, because the return to the mentality must stop waiting for generous benefits by the state, which has had known results in the recent past

On the positive side, however, most of the measures taken are one-offs and do not significantly burden future budgets.

The next day and the red loans

The progress that has been made in reducing red loans, especially in the last two years, is enormous. The process of their rapid reduction was started in 2018 by Eurobank and today two of the four systemic banks in the country have a single-digit percentage of red loans while the other two have a low double-digit percentage. By the end of this year, all systemic banks are expected to have single-digit percentages.
To better understand the magnitude of this improvement, let us recall that at one time red was more than current loans. The process of reducing them continues even after reaching single-digit percentages in order to get closer to the European average which is below 3% or the percentages of red loans that existed before 2008 and ranged at 4-5%.

The new geopolitical crisis has not yet led to an increase in red loans but we are closely monitoring the situation because the reduction of real disposable income due to inflation, and especially energy costs, may create some problems, which if they arise will be manageable.

With these developments, Greek banks are now becoming “good banks” from “bad banks” that were in the years of debt crisis and can now deal with their main job which is none other than financing the development of the country. The leaderships and staff of the Greek banking system are now dealing with this, and the competition for financing is very great, while new products and services are constantly being developed.

In addition to this reorientation of the priorities of Greek banks, the drastic reduction of red loans greatly reduced, so to speak, the cost of risk and significantly increased the organic profitability of banks. This profitability is now a permanent source of increase in banks’ capital, which funds after the consolidation of balance sheets can now be used to increase the financing of the economy, aided by the significant liquidity they now have. At Eurobank, for example, we plan new disbursements of over 8 billion euros for the next three years. If all Greek banks have similar goals, then we are talking about 30-40 billion disbursements in the next three years.

The increase of financing from the Greek banking system is one way because at the moment the serviced loans as a percentage of the GDP in Greece are close to 60% while before the crisis it exceeded 100% and already in similar countries like Portugal this percentage is already in 110%.

While of course these are positive developments, it should be noted that the restructuring of the Greek economy, which has now been entrusted to the so-called servicers, has not yet been completed and is a pending issue. Banks are looking forward to a speedy restructuring in order to speed up the recovery of the economy, which of course has already begun, and a number of companies to return to bank lending.

in conclusion

Banks are ready to fulfill their development role. Not only through their own funding but also through the important role they play in the effective allocation of the resources of the Resilience and Recovery Fund.

Right now, and after so many crises, the country is facing a period of growth, building on the opportunities created after so many years of crisis, on the reforms that have taken place but, and, most importantly, on the enormous resources that for the first time are so many available through the Sustainability and Recovery Fund as well as the European Structural Programs.

The role of Banks in the efficient allocation of funds is expected to be crucial. This is reflected in their ability to evaluate, finance and then monitor the implementation of business plans, through a specific framework of rules and procedures.

Within the framework of the Fund, in Eurobank, we are expected to proceed with significant financing of over 2 billion euros while we aim through our know-how to support the companies to utilize the resources of the program and to implement investments that enhance the sustainable development, the digital transformation, resilience and innovation.