The General Manager of International Activities at the National Bank of Greece believes in the future of the Euro. He doesn’t expected rescheduling of debt payments and stated in an interview with Maria S. Topalova that the Greek banks are still strong despite the crisis.
Mr. Leopoulos, we all believed a few months ago that the Greek banking system is healthy and stable. Now the Greek press is constantly writing about the impending merger of Greek banks, which will leave two to three banks on the Greek market. What is the reason for such a dramatic change in the image of Greek banks lately?
I think you are right. It is the image of banks. Because reality essentially shows us that banks remain stable, have high rates of capitalization, know-how, good infrastructure and escaped, unlike other European banks, budgets pollution with toxic and other hazardous products. The Greek banking system remains stable and this is a great advantage for the Greek economy in this difficult period. What affected its image poorly is what caused the crisis in the public finances in Greece - the problems with deficits and debt. They affected the image of Greek banks too. However, my opinion and the opinion of all bankers in Greece is that banks remain healthy and cope with the difficulties faced.
As for mergers - will there be any?
You see, the discussion about what the ideal size of Greek banks is and how it will be reached continues for many years. It is not something anyone can foresee. And I do not think something is being done for sure at this point. It is reasonable to give rise to rumours, in periods of major changes that always happens. What is currently on the agenda of any Greek bank is to ensure its balance, to provide liquidity and, of course, its profits in a period of financial crisis. That is why I’m speaking of comparative stability of banks.
The results of the banks for the first quarter of 2010 are not very good. Their profits fall, expectations for unpayable loans increased. Bank of Greece alarmed for deposits flowing abroad. At the same time, the international agencies continuously reduce the credit rating of the Greek banks and the so-called expected value. Furthermore, Greece is entering into a deeper recession than expected in the beginning. How Greek banks will survive in such a difficult situation?
I think the most important thing now is the stability, which the Greek banks have achieved. It has not changed. Public finances of the state have deteriorated. Greece is aware of this and took serious measures to remedy this situation. As for the profits and size of banks, let's not forget that, perhaps, we are in the worst crisis since the fall of the military junta in the country. This crisis has affected the Greek economy, but also the economy of the region perhaps a little late after what happened on the Western European and American markets. We are in a better position to deal with the crisis, because the Greek banks and the banks operating in this region as a whole have a much better balance. We granted credits to the Greek economy, the citizens of Bulgaria, the Romanian business. We did a real bank job, and did not use the funds to buy toxic bank products or to divert from our main mission. It is now logical to have any gap in profit in these difficult working conditions, but this is in no way indicative of the stability and strength of the Greek banks.
How the analysts of the National Bank of Greece consider the situation in Greece? How long will the recession continue?
I think we all agree that this year will be difficult. We will be able to see the first signs of economic recovery the next year as far as we can, of course, stick to the terms of the Memorandum. Everyone understands this, I think, and we all have come together to achieve it. Let us not forget from now on that what Greece is currently going through is not a single phenomenon. Other southern countries, and not only in Europe, are facing similar problems. There is a more general problem that needs a global solution. The European Union is trying to solve it by drawing a plan for stability. I want to emphasize that there are problems in the Greek economy which we should not underestimate but there are and positive elements that we should not forget. Greece has a stable banking system. The image of its banks is much better than that of banks in other countries during global crisis. The Greek banks have perfectly developed while it lasted. The prices – especially of real estate – did not boom in Greece as was the case in other EU countries. Greece is a country with a small share of private loans as a percentage of gross domestic product, which speaks well for the banking system. It is much lower than in other countries when compared to external debt ratio. What we now consider as a problem, for example, is the informal economy. It exists and is one possibility. There is a great chance for improvement if the state manages to cope with it supported by all of us. I mean that there are immediate solutions; we just have to find them and bring them to light.
How will Greece come out of this crisis? There are various scenarios. Reuters talks about possible suspension of debt payments. Bloomberg’s analysts believe that Greece will come out of the Eurozone. NurieliRubini insisted for quite some time that both will happen. How the National Bank of Greece considers these options?
We do not share these views. I say this because I have a closer look at the problems and difficulties we are facing now. And not only we but also the economies of neighboring countries in Southeast Europe, where we have a very strong presence. A large part of the profit of the National Bank of Greece and from its activity in general is generated from this region. This gives us a great advantage in this period of crisis. Everyone has the right to analyze. But if we look at all the historical analysis, made in connection with the sources of problems in the past 30 years, it is apparent that hardly all of them occurred. We believe that what the Greek economy is currently trying to do is right and the first signs are positive. We have a mechanism to support both Greece and the whole Eurozone. Part of it comes in Greek banks. We have an ambitious and rigorous plan for reforms. It clearly shows where we are going to. It is gradually becoming clear to all that this is the only way out. Initial results show the plan is effective. I think the direction the Greek economy has chosen is the one we should follow. I deliberately use that phrase because we all are part of it, not just the government or a bank.
In other words, Greece will not reschedule its debt?
At this point and with the numbers we have, and the direction in which to develop, and if we achieve the objectives set out in the plan, because we may not reach them. But all of us who deal with economic support such measures, a decision will be found. There is no doubt that the finances of thе country experience difficultiest. But at this stage, Greece has chosen the only possible way. Nobody can tell what will happen after 3,5 or 7 years. What one can tell is whether he believes in his choice for Greece and its economy. This is the way we should follow.
The shares of the Greek banks dropped a lot lately and they should be very attractive to investors. However, the investment bank JPMorgan recently advised them: “do not rush to buy Greek banks, they may not recover from the crisis.” How would you comment this call?
I will not comment on it. We do not comment on what foreign analysts say, although we follow it carefully. I would say that price drops of banks are logical in view of the overall macroeconomic instability. The same applies to credit rating agencies. They do not lower the ratings only of Greek banks and enterprises, but of a series of institutions and countries listed on international exchanges. The acts of these agencies have caused serious response not only in Greece but in many places in Europe too. This is a relative phenomenon. When an overall crisis is developing that questions the existence and stability of the Euro it logically affects the shares on the stock exchange. It is not something the banks have caused or that affects only them and decreased their value.
What is the survival plan of the National Bank of Greece in this difficult economic period?
We are doing what the National Bank of Greece has always been doing. We avail of very large capitalization. The National Bank of Greece is one of the banks in Europe with the highest capitalization. It has high rate of liquidity which, especially at this moment, is very important. We have explained to our shareholders, to a wide range of investors, and to our customers and partners that the state of the National Bank of Greece is highly satisfying in view of the circumstances. From now on, we are trying to control and protect the quality of our portfolio, ie quality of loans, which, undoubtedly, is affected by the circumstances. I do not speak of the Greek economy only. It certainly has its influence. I speak of the influence of the whole global economy, not only upon Greece but also on all the countries of Southeast Europe. And, of course, we carefully watch the costs. I mean, control costs, keep the quality of the portfolio, and ensure adequate liquidity thus protecting the high capitalization and the trademark of the National Bank. We managed very well to do this so far. The results show that the bank continues to be profitable in all countries where it is presented. And when this crisis passes away, both on world and Greek level, our bank will be in very good position to continue its pick up.
Have you bought many government bonds?
The National Bank already announced how many bonds it has purchased. Their number is similar to the number of bonds that other banks have purchased and this is not a problem at this time. On the contrary, one of the advantages of the balance of the bank is that it includes a stable variety of risks based not only on Greek bonds, but also on international securities. At the same time, it has developed its balance on the basis of very, very strict bank criteria for funding.
Will the Greek economic crisis affect your investments in Bulgaria? Is there a possibility the National Bank of Greece to withdraw from the Bulgarian market?
No. It is possible to affect the investments in the international market. I want to emphasize this, without trying to compare what we do in the National Bank and other Greek banks with what has happened in other countries. Such sharp movements have occurred with other banks on other markets. On one hand, they have put their fingers in the fire of toxic products in their budgets and on the other they managed the risk in a very wrong way. This is not the situation with us. It is true that this is a challenging period when we should be careful and control our balance sheets and our place on the market. However, our logic for Bulgaria and other countries in the region, is not accidental. Bulgaria is very important for us because of our great and very successful presence there – in the United Bulgarian Bank, but also in the field of lease with Interlease company, which is the largest company in the branch. This presence was built after many years of efforts. We have invested capital, we explored the long term abilities of Bulgaria, we believe in the development of its economy Either way, a bank can not thrive if the economy of the country is not doing well. We have invested in people, know-how, infrastructure, and procedures. This is not random. It takes time and resources and the aim is long-term result. Nothing threatens our presence in Bulgaria.
What is your inside look for the Eurozone? Will other countries follow the path of Greece? What will happen to the common European currency? Will it exist after five years or not? What will be the euro-dollar ratio?
Hardly anyone can say what will be the euro-dollar ratio and I am not sure if this is so important. My opinion, and the opinion of many factors in the economy, is that the Euro is under question now. Here, however, we will have to divide things to short-term problems and long-term prospects. Certainly, there must be changes in the management of the Eurozone and they are already being discussed. Yes, it is true that we learned a few new lessons. For example, the requirement for deficits and debt, as defined in the Maastricht Treaty, is clearly not sufficient. There should be some mechanism to protect us from an imbalance between the member states. I believe that Europe will make these changes, it will try to resolve the problems that arose. Let us not forget that the Euro is on trial in a period of global recession. It was not forced with similar circumstances so far. I think what happens now is a chance to make some changes, but in no case to destroy the whole project called Euro. Because I continue to believe that this project has very important economic benefits in terms of payments, transparency, investment, mergers. But we are obliged to improve some of its features from now on. I think that the European Commission acts in this direction to improve the Eurozone. There are countries which have been criticized for their macroeconomic indicators. But if someone asked me if we should change the general concept of the Euro I wolud say no. But we have to improve the management of the Eurozone for sure.
What are the chances of Bulgaria to join the Eurozone? What is your advice based on the Greek experience – to enter the Eurozone or to wait outside?
This is a difficult question, with regard to the advice. What I can say is that Bulgaria has a significant progress, if seen chronologically, in the achievement of long macroeconomic stability. Surely it has problems arising from the global crisis, because no country in the world remains unaffected by a global crisis. Bulgaria will have to solve these problems and continue to work for the purposes it set itself. I can say, as a Greek, that the effectiveness of the Euro, despite all this instability, continues to be a very important project. I wish this to happen to Bulgaria. Either way, the IMF has prepared the country for the way the Eurozone works. As a representative of a bank that operates in your country we will do whatever we can to help the country achieve its objectives. The presence in the Eurozone would strengthen the Bulgarian economy.
As for the BGN-Euro ratio, it has remained on one level for quite some time and many analysts believe that it should be changed. What is your opinion?
I will not comment this issue. The Bulgarian authorities probably have studied this major project in depth for many years. I believe that the present Bulgarian economy enjoys the benefits of synchronization with the European environment. I think people who govern the country should continue to analyze this issue and to decide which is the right choice.
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