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Recession and bonds led to losses for banks

02 June 2012 / 17:06:16  GRReporter
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The in advance disbursement from the Fund for financial stability gave a bit of fresh breath to banks. The consolidation of banks is reflected in their indices for capital adequacy, while at the same time the level of their liquidity is improving.

However, the recession of the Greek economy and the devaluation of the Greek bonds exerted serious pressure on their financial results for the first quarter of 2012.

The increase in nonperforming loans reflects the inability of individuals and companies to repay their obligations due to the worsening economic situation.

Delays in repayment of new loans are over 90 days and the increase in new loans in Eurobank is reaching 15 percent and 14.9 percent in Alpha Bank.


The cost of raising liquidity has brought losses of 77 million Euros

Eurobank closed the first quarter of this year with losses of 77 million Euros, due to the high cost of raising liquidity and increasing forecasts for doubtful debts.

Given the recent loss of value of Greek government securities amounting to 159 million Euros, the losses amount to 236 million Euros.

The capital adequacy index gained 9 percent after the advance payment of 4 billion Euros, which the bank received from the Fund for Financial Stability.

Simultaneously, due to the temporary recapitalization of the bank, its liquidity was substantially improved and during the first quarter of 2012 a slight decline in deposits was recorded, amounting to 868 million Euros.

The bank’s income before provision increased by 9 percent compared to the last quarter of 2011, mainly due to financial gains, and amounted to 275 million Euros.

According to results provided by Eurobank, on an annual basis operating costs have decreased by 5 percent and by almost 20 percent since the beginning of the crisis. The financial results of the international activities of the bank are generally positive due to the high cost of financing and net profit reached 1.2 million Euros for the first quarter of 2012.

Eurobank’s Executive Director Nikolaos Nanopoulos stressed that the bank retains its ability to generate revenue, control its liquidity and reduce its operational costs. He also said that the bank is continuing to conclude loan agreements, in order to support the Greek citizens and local businesses.

Alpha Bank

Reduction of operating costs, but still reporting losses of 107.8 million Euros

Due to the serious deterioration of its economic activity the losses of Alpha Bank during the first quarter of 2012 reached 107.8 million Euros. As a consequence of the temporary recapitalization of the bank with 1.9 billion Euros from the Fund for Financial Stability, the bank’s capital adequacy index reached 9.6 percent and the index of basic own capital - 7.2 percent.

Operating expenses have decreased by another 3.3 percent and it is expected that staff costs will decrease by another 10 percent compared to 2011.

Deposits reach 27.9 billion Euros - a reduction of 1.5 billion Euros in the first quarter. The limit for raising additional capital reaches 6.5 billion Euros and is expected to be boosted by 1.9 billion Euros through the bond allocation from the Fund for Financial Stability. Operating costs have decreased by about 3.3 percent on an annual basis through the implementation of the programmne for rationalizing costs and they have reached 264.8 million Euros, while the cost index compared to the revenue index has reached 56.8 percent.

Alpha Bank President George Kostopoulos said that the first bold step towards recapitalizing the Greek banking system through the Fund for financial stability has been completed. The next crucial step in this process is to create a framework for recapitalization, which will facilitate private sector participation and help maintain the efficient allocation of resources in the Greek economy.

Meanwhile, according to research conducted by Eurobank, the implementation of proposals for total stripping of bank loans without specific criteria will lead to greater redistribution of income and serious injury for those who have not taken credit and/or are strictly performing their duties despite the difficulties.

"It is clear to everyone that the unprecedented economic crisis in the country has led many households and companies tothe  inability to fulfill their obligations to the banks. This is also evidenced by the continued increase in nonperforming loans. For their part, banks have now set large provisions in their balance sheets against such developments (20 billion Euros in the last three years) and have carried out loan restructuring for a large proportion of their customers in order to facilitate borrowers,” stated Eurobank in its research.

"In this difficult environment, proposals for a general pruning, without specific criteria, of existing bank loans have been submitted, in order to relieve households and local businesses. Such an outcome, however, will result in equal losses in all bank’s balance sheets and subsequently it will lead to reduction of their capital adequacy, with losses for their shareholders, the main shareholders being the Fund for Financial Stability and the Greek state."

"These losses will have to be covered either by cutting elements of the bank’s liabilities or through recapitalization with funds that will be requested from European partners and the International Monetary Fund. The final price for paying for these new funds will have to be borne by the state budget, i.e., again by the goodhearted Greek taxpayer, which will lead to a new debt increase. Given that today only half of the Greek citizens have loans, and about 80 percent of them are paid on time, favoritism of some of the creditors without specific criteria and procedures will cause a major redistribution of income and serious injury for those who have loans and/or are strictly performing their duties despite the difficulties. In the business sector, however, a similar action can distort competition. The consequences of such developments will be particularly negative, as this will allow more borrowers to default on their obligations. This in turn will have dramatic negative consequences for the economy, development and employment in the country," noted Eurobank’s research.

Tags: recession economic crisis losses capital adequacy Fund for Financial Stability
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