Governments around the world have already allocated more than $ 13 trillion (IMF source) to protect and support workers, professionals and businesses from the effects of the pandemic. Central banks, acting supportively, have strengthened monetary stability and national economies, reducing interest rates to very low (or even negative) levels to make it as easy as possible to manage public and private debt and to support the financial system. They offered plenty of cheap (or even inexpensive) liquidity but also adopted payment moratoriums to avoid, as far as possible, a new wave of non-performing loans consuming the available capital reserves. Nevertheless, The pandemic has had and continues to have consequences in many areas that are not yet easy to quantify accurately, but the effects on the financial system are already evident. The shock from the unpredictable crisis was strong, significantly more intense even than the international financial crisis of 2008. It is characteristic that the global banking system rushed to make forecasts against bad debts of 1.15 trillion. in just nine months, more than the forecast for the whole of the previous year (2019). It is estimated that banks will write off receivables of 1.5 to 4.7 trillion. USD in the five years 2020 to 2024. significantly more intense even than the international financial crisis of 2008. It is characteristic that the global banking system rushed to make forecasts against bad debts of 1.15 trillion. in just nine months, more than the forecast for the whole of the previous year (2019). It is estimated that banks will write off receivables of 1.5 to 4.7 trillion. USD in the five years 2020 to 2024. significantly more intense even than the international financial crisis of 2008. It is characteristic that the global banking system rushed to make forecasts against bad debts of 1.15 trillion. in just nine months, more than the forecast for the whole of the previous year (2019). It is estimated that banks will write off receivables of 1.5 to 4.7 trillion. USD in the five years 2020 to 2024.
The truth is that since this catastrophe, the Greek banking system has been comparatively less surprised, as it found itself in a position of battle, while facing the accumulated burdens of the past. Non-performing loans (NPLs), a result of the deepest economic crisis of the decade of 2010, are now 58.7 billion euros, significantly reduced (by 45.2%) from the historic high of 107.1 billion euros. 2016. Everyone now knows and recognizes that banks are in the process of painful, but also drastic, de-escalation. In this sense, the pandemic has not disproportionately exacerbated this already big problem, but it is not ruled out that it will worsen it or even temporarily slow down its treatment.
Paradoxically, it is a fact that public opinion has not fully realized the magnitude and substance of the problem. Many people think that the heavy bond of red loans is exclusively for the banks themselves, their administrations and no one else. However, the accumulation of non-performing loans is an inherent problem of the economy, as it essentially “neutralizes” the basic operation of banking institutions, lending and therefore prevents them from performing their necessary development role. In fact, achieving their long-term viability is not only the goal and endeavour of the banks’ administrations and shareholders, but of any institution interested in the prosperity of the economy and its sustainable development.
At the same time, the economic impact of the pandemic is adding new burdens, but may also provide supplies to speed up their effective response. Everyone now understands that the functioning of the economy, the return to sustainable growth, the priority in creating wealth and jobs, in increasing incomes, presupposes, among other things, accelerating the consolidation and strengthening of the banks’ balance sheets. The real economy needs banks with a low single-digit percentage of non-performing loans in total lending, strong banks that will not rely on “artificial” forms of capital such as deferred taxation, but will have sufficient “net” funds (both basic own funds – CET 1 – and additional – Tier 2) to enable their dynamic participation in the credit expansion. Today, more than ever, we need strong banks that will lead economic growth and not restrict it.
To effectively fulfil this mission, they must strengthen their capital adequacy (either through internal capital creation or, where necessary, through increases), accelerate the pace of their operational and digital transformation, and quickly adapt their business models and performance. to the demands and needs of the market but also of international competition (domestic not excluded), to harmonize their operating costs with the new income figures and of course to consolidate their respective balance sheets, relieving them of the burdens of the past. The flexibility, the resilience, the elimination of bureaucracy, the digitization of all kinds of functions and the widespread use of artificial intelligence,
Restoring citizens’ trust in the banking system co-exists with taking responsibility. The management of the banks has the responsibility to emphasize the needs of their customers and the real economy, developing dynamic products and services and productively utilizing the liquidity that is generously provided to them, donating blood to entrepreneurship, large infrastructure projects, extroversion of Greek companies and all kinds of development investments. They must look far and wide beyond the effects of the pandemic and the heavy legacy of red loans, adopting new, more efficient ways of operating, effectively integrating technology solutions, leveraging new state-of-the-art risk management models. faithfully implementing the consolidation and transformation initiatives they have undertaken. They must adopt sophisticated operating standards that ensure their evolution into simplified, flexible, resilient organizations even in an environment of zero interest rates, limited or even troubled demand (ie from low creditworthiness, unsustainable and socially viable).
The Greek banking system currently has a strong and, perhaps, unique advantage. Long before the unprecedented catastrophe caused by the pandemic, he experienced the harsh and deep economic crisis of the previous decade, which was more intense and of much longer duration. Greek banks have developed antibodies that are now set to prove extremely useful. Our banks have a strategy and plan for the future, valuable experience from their relatively recent leadership presence in the Balkans and Southeastern Europe, satisfactory organic and operational resilience which they have shown throughout the health crisis, trained and competent executives, European support, state encouragement and support. In other words, they have the necessary supplies to participate in the next phase.
* Mr. Ilias E. Xirouhakis is Deputy Chief Executive Officer of the Financial Stability Fund (FSF). The views expressed in this article are personal.