As Greece prepares to exit its eight-year EU bailout programme by the end of the summer, the most recent European Central Bank (ECB) stress test showed a return of confidence to the Greek banking sector. Although Greek banks would face a €15.5 billion hit to capital under a worst-case scenario, senior Greek officials noted there is “no immediate need for a capital increase by any bank.”
Most notably, Eurobank, the third largest Greek bank by total assets and fourth largest by market capitalisation, performed remarkably well on the stress test. Its capital base was shown to be resilient to external shocks, and in the baseline scenario, the bank was capital accretive over the three-year period examined.
In May, Moody’s upgraded Eurobank’s rating on long-term deposits and unsecured debt from Caa3 to Caa2. It also upgraded its CRA rating, which is a measure of how much a bank helps meet the credit needs of the communities it operates in, from Caa2 to B3.
Moreover, Eurobank has been “profitable every quarter since the first quarter of 2016 [reaching a net profit of €186 million in 2017],” said the bank’s CEO, Fokion Karavias. “We have been capital accretive, we have created organic capital of about 220 basis points offset one capital. And we have also met the NPE [non performing exposures] Reduction Plan … by reducing NPEs by 2.4 billion euros, starting from a stock of about 20 billion euros.”
The NPEs – which are debt obligations, such as the repayment of a loan, which a borrower is not meeting – are one of the largest challenges facing the Greek banking sector. The Greek economy, especially the banking sector, was hit hard by the 2010 European debt crisis – Greek banks have been recapitalised three times in the past eight years.
“Meeting the NPE reduction plan for 2018 remains a top priority for the bank,” said Karavias, adding, “I feel very confident that this is something that we’re going to repeat this year.” He explained that the bank’s plan for NPE reduction in 2018 has four main components: 1) transform non performing loans into performing loans 2) engage in collateral liquidation 3) utilise write offs and write downs and 4) utilise portfolio sales.
“Eurobank has been the first bank in the fourth quarter of 2017 that sold 1.5 billion euros of consumer loans. We are going to repeat a similar transaction during the course of 2018, and we’re reviewing the possibility of also selling portfolios of secured loans,” Karavias said.
In addition to NPE reduction, Eurobank is heavily invested in financing the real economy, particularly through SMEs, small and medium-sized enterprises. The bank both finances SMEs and encourages young Greek entrepreneurs through its Enter-Grow-Go (EGG) programme. “We provide the place where they [young Greek people] can start this business, and if the idea goes ahead, we could also provide some financing for that,” explained Karavias.
The programme, which was started in 2013 together with the Greek accelerator Corallia, has been recognised as the most prominent accelerator in Greece. Over the years, 355 young entrepreneurs have participated in the programme, 132 business groups have been set-up, 90 of which have acquired legal status. Additionally, more than 150 new jobs have been created by EGG.
Eurobank is the first Greek bank that has created this type of innovation center dedicated to innovation research and encouraging and supporting young people who can generate value-added products and services. This does not come as a surprise, as Eurobank is highly business-oriented and currently the most private bank in Greece – although this was not always the case.
“It is true that at the bank we have gone through very difficult times. Personally, together with my colleagues, we have sailed through very turbulent waters over the last few years. Let’s remember that in 2013 only a few years ago, the bank was nationalised; it was owned 100 percent by the HFSF [Hellenic Financial Stability Fund],” Karavias explained.
“Today, Eurobank is the most private bank in Greece and we are very proud about this achievement,” he continued. “We have been able to attract very high quality shareholders, shareholders that have supported the bank and the management of the bank and myself personally to achieve what we have done over the last few years … we have done a great job because Eurobank has a fantastic management team that works perfectly as a team.”
Although the bank remains, by choice, a regional player, it is also the only Greek bank with a paramount presence in international markets, including in Cyprus, Serbia, and Bulgaria. Eurobank Cyprus is the strongest bank on the island; and in Bulgaria, Eurobank’s Postbank is the fourth largest in the country.
“We are planning to grow further in these markets,” said Karavias, “either through organic growth or through acquisitions, if there is such an opportunity.” But he reiterated that “it is our decision to remain a regional bank [and] this decision and this strategy has been endorsed by our board of directors, because we want to follow our customers to the countries where they would like to do business.”
Eurobank currently operates nearly 900 branches around the world.