Deposits Drop as Greeks Use Up Savings After Salaries Fall
Bank Deposits Drop as Greeks Use Up Savings
Kostas Tsironis/Bloomberg
Withdrawals by customers, as well as by Greeks moving money out of the country, helped push deposits at the nation’s banks down by 9 percent since the end of 2009.
Withdrawals by customers, as well as by Greeks moving money out of the country, helped push deposits at the nation’s banks down by 9 percent since the end of 2009. Photographer: Kostas Tsironis/Bloomberg
Aug. 31 (Bloomberg) -- Ralph Silva of Silva Research Network talks about the outlook for mergers in Greece's banking industry. He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)
Bank Deposits Drop as Greeks Use Up Savings
Kostas Tsironis/Bloomberg
Business and household deposits in June fell for a sixth straight month to 216.5 billion euros ($277.3 billion) from 238 billion euros at the end of 2009, according to figures from the Bank of Greece.
Business and household deposits in June fell for a sixth straight month to 216.5 billion euros ($277.3 billion) from 238 billion euros at the end of 2009, according to figures from the Bank of Greece. Photographer: Kostas Tsironis/Bloomberg
Marina Efthymiou, who works in a state-run call center in the Greek capital of Athens, is tapping her bank savings to meet living expenses after her income declined amid the country’s debt crisis.
“I use the money that I have in the bank because I don’t have much money now and because I have a lower salary,” said Efthymiou, who spoke in an interview while sitting on a bench in Syntagma Square in central Athens.
Withdrawals by cash-strapped customers such as Efthymiou, and by Greeks moving money out of the country, helped push deposits at the nation’s banks down by 9 percent since the end of 2009. The government introduced austerity measures to rein in the European Union’s second-biggest budget deficit, which ballooned to 13.6 percent of gross domestic product last year.
Public workers, who went through two rounds of salary cuts, are now enduring a three-year wage freeze that was announced in May. The government raised the main value-added tax to 23 percent as of July 1, after an initial increase to 21 percent from 19 percent, and lifted taxes on fuel, alcohol and tobacco. Greece’s economy will shrink 4 percent this year and 2.6 percent in 2011, the government forecast in May.
Domestic households “seem to have begun drawing down on savings to compensate for lower disposable incomes due to wage restraints, higher taxation and elevated inflation rates,” said Gikas Hardouvelis, chief economist at Athens-based EFG Eurobank Ergasias SA.
Sixth Straight Decline
Business and household deposits in June fell for a sixth straight month to 216.5 billion euros ($277.3 billion) from 238 billion euros at the end of 2009, according to figures from the Bank of Greece.
Greek banks rely on deposits to fund lending to clients, and any withdrawals may force them to borrow more from the European Central Bank as money markets remain shut. Deposit outflows in the second quarter caused National Bank of Greece SA to increase borrowing from the ECB by 6.4 billion euros to 21.3 billion euros, compared with the first three months of the year, according to Tania Gold, a London-based analyst with Italy’s UniCredit SpA.
“In the first quarter NBG saw less outflows of domestic deposits than peers, but this trend does not appear to have been maintained, with NBG seeing 4 percent deposit outflows in the second quarter, ahead of the system,” Gold wrote in a report. “Unsurprisingly, dependence on the ECB continues to rise.”
‘Gradually Eased’
The cumulative ECB funding of Greek banks was 96.2 billion euros in July, up 2.5 percent from the previous month and a 94 percent increase from the end of last year, when it stood at 49.7 billion euros, according to Manos Giakoumis, research director at Euroxx Securities SA.
“Nevertheless, the incremental ECB funding has gradually eased since May to a total of 11.4 billion euros over the last three months, compared to the April figure of 17.8 billion euros,” he said.
While ECB money is cheaper than term deposits, Greek banks can’t rely on central bank cash forever, as policy makers plan to stop the unlimited lending introduced at the height of the financial crisis. The banks will have to start borrowing on the money markets again, or try to attract deposits to secure their funding base.
National Bank rose 5.7 percent to 10.68 euros at the close of trading in Athens, while EFG Eurobank climbed 4.1 percent to 5.29 euros and Alpha Bank advanced 3.8 percent to 5.45 euros. Even so, the lenders are the worst performers in the 54-company Bloomberg Europe Banks and Financial Services Index this year, having dropped more than 30 percent each.
Merger Speculation
Merger speculation has increased after Finance Minister George Papaconstantinou urged banks to cooperate. Piraeus Bank, Greece’s fourth-largest lender, in July offered to buy the Greek government’s stakes in Hellenic Postbank SA, which has a large deposit base, and Agricultural Bank of Greece SA.
Combining banks may lead to cost savings, stronger balance sheets and better access to capital at a time when the crisis puts pressure on earnings as loan losses jump, government bonds fall in value and the cost of deposits rise. National Bank said first-half profit dropped 79 percent to 146 million euros, while net income at Eurobank and Alpha Bank decreased 61 percent and 62 percent, respectively, in the second quarter.
“The continued negative macro-economic environment in Greece and the shrinking liquidity of households and businesses led to a 6 percent contraction in the bank’s deposits during the first half,” National Bank, which controlled one-third of Greek savings deposits in the period, said on Aug. 27.
While the pace of money outflows has slowed in recent months, deposits at Greek banks may decline further amid the economic contraction forecast for this year and 2011.
“My salary is lower than before so out of necessity I use my money from the bank,” Efthymiou said in Athens. “I don’t put any more money in the bank; I take money from the bank.”
To contact the reporters on this story: Niklas Magnusson in Stockholm at nmagnusson1@bloomberg.net Tom Stoukas in Athens at astoukas@bloomberg.net.
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