Would Greek Banks Survive a Global Financial Crisis?

The shares of Greek banks took a hit on Wednesday following fears of a global meltdown after the troubles of banking giant Credit Suisse.

Piraeus Bank and Alpha Bank closed with losses of 10.98 percent and 10.39 percent respectively, with Eurobank following with by 9.19 percent.

The Governor of the Bank of Greece, Yannis Stournaras, and the advisor to the Prime Minister with responsibility for banks, Alexis Patelis, appeared reassuring, claiming that the domestic financial system is sufficiently protected.

“We are watching SVB’s collapse in America and Suisse’s problems in Europe. No one knows how the global banking scene will evolve, but our country is different from what it was before. We remember the imposition of capital controls and the fears of a haircut in banking deposits. These are not going to happen again,” Patelis said.

The Greek banking system is clearly in a much better position now to absorb any turbulence from international markets than it was four years ago, Greek Finance Minister Christos Staikouras said.

Staikouras warned, however, that there was no room for complacency. The uncertainties, globally, are many and the challenges are new and major. “The government, in cooperation with supervisory authorities, is monitoring developments and will continue to work towards safeguarding financial stability in the country,” he said.

Problems at Credit Suisse not related to Greek banks

Government officials and banking executives say that Credit Suisse and Silicon Valley Bank collapsed for specific reasons that have nothing to do with Greek banks.

In contrast to those banks, Greek banks are not only not hemorrhaging deposits, but on the contrary, in recent years they have significantly increased their reserves, they say.

They point out that the latest figures of their published balance sheets show the ratio of loans to deposits is significantly below one. In other words, they have more deposits than loans.

As Finance Minister Christos Staikouras said banks have significantly boosted their liquidity through an increase in deposits and by accessing capital markets. “Let us be specific: deposits are up 30% in the last four years, or by 50 billion euros, while access to international markets has strengthened with new issues and capital worth around 12.5 billion euros”.

Greek banks have undergone significant restructuring and reform since the 2008 financial crisis. This has included recapitalization and regulatory oversight from the European Central Bank, which has helped to address many of the concerns surrounding their solvency.

Greek banks have also reduced their exposure to non-performing loans (NPLs) they have in their possession to a single-digit level. The creation of a bad bank to deal with NPLs has been seen as a positive step toward improving the overall health of the banking sector.

In 2018, Greek banks owned almost half of NPLs in the EU. Staikouras noted on Thursday in July 2019, NPLs were around 44% of bank portfolios and have since dropped to 8.7% in December 2022.

Furthermore, the European Central Bank has already put in place a mechanism to provide liquidity to the banking system.

The Emergency Liquidity Assistance mechanism helped Greek banks to maintain their liquidity despite the massive flight of deposits during the bailout crisis, proving that the European banking system can even deal with extreme liquidity scenarios.

In any case, as market sources point out, the negative international climate is certain to affect Greek banks, at least in terms of the value of their shares.

But their extremely strong fundamentals, profitability and the moves they’ve made to shore up their balance sheets, all contribute to the fact that they have nothing to do with the problems faced by Silicon Valley Bank and Credit Suisse. At least for now.