Greek Bank Losses Show Predicament Amid Record Outflows

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Greek banks, forced into a central bank liquidity lifeline, reported sustained losses as they struggle with record deposit outflows and a double-dip recession.

More expensive funding from the European Central Bank and higher provisions for souring loans led to a 159 million-euro ($173.6 million) first-quarter net loss at National Bank of Greece SA, the country’s biggest lender by assets. Its deposits fell 8.3 percent to 60.4 billion euros from a year earlier. Alpha Bank AE reported a third straight quarterly loss at 115.8 million euros on a 14 percent contraction in deposits. Piraeus Bank SA on Wednesday said its loss was 69 million euros as deposits shrank by 15 percent.

“Greek banks are entirely depending on emergency funding; it’s really not a long-term sustainable solution,” Otto Dichtl, managing director of Stifel Nicolaus Europe Ltd., said on Bloomberg Television’s “On The Move” with Jonathan Ferro. “If the government moves and gets a support deal maybe they can start working on non-performing loans, maybe they can start bringing in foreign investors.”

Greek lenders have lost access to capital markets and the ECB’s normal financing operations amid a standoff between the country’s government and its creditors over the terms of the current bailout. Lenders rely on more than 80 billion euros of Emergency Liquidity Assistance extended by the Bank of Greece to stay afloat, a more expensive source of funding, while they are forced to participate in liquidity-draining auctions of government treasury bills.

The Greek government’s chief spokesman on Thursday said an agreement could be hammered out by Sunday, even as the International Monetary Fund and other creditors insisted that much work remains to be done. Adding to the pressure, the economy, which had emerged from a six-year slump in 2014, fell back into recession in the first quarter.

The macro situation “has led to a higher Eurosystem funding reliance and a reversal of the improving asset quality trends we experienced last year,” Alpha Bank Chief Executive Officer Demetrios Mantzounis said in a statement. An accord with creditors would “remove any uncertainties and restore confidence in the economy and the Greek market,” Piraeus Bank Chairman Michael Sallas said Wednesday.

Deposits outflows moderated in the second quarter. National Bank lost another 1.9 billion euros of deposits as of the end of May. Piraeus’s private deposits also fell by 1.9 billion euros through mid-May. Deposit outflows continued in April and May, although at a reduced pace, Alpha Bank said.

While deposit outflows have subsided in the quarter, net interest income “will bear the brunt of higher wholesale funding,” Pantelakis Securities SA analyst Paris Mantzavras said in a note to clients.

Capital Injections

Losses at National Bank and Alpha Bank were both higher than expected. Analysts estimated a net loss of 51.1 million euros at National Bank, according to a Bloomberg survey. Loan loss provisions rose to 446 million euros from 362 million euros a year earlier. Alpha Bank was expected to report a loss of 87.7 million euros. Its net interest income was down 2.8 percent from the previous quarter.

The ECB on Wednesday left the level of emergency cash available to Greek banks unchanged at 80.2 billion euros from a week ago, said two people familiar with the matter.

Still, “pressures are unlikely to ease over the next 12 to 18 months and there is a high likelihood of an imposition of capital controls and a deposit freeze,” Moody’s Investors Service said on May 20, giving a negative outlook for Greek banks.

Greek banks will “likely require additional capital over the outlook horizon” after two rounds of recapitalizations in 2013 and 2014, Moody’s said. Greece’s bailout program has 10.9 billion euros parked at the European Financial Stability Facility to help the banks if creditors are willing to release the funds. This money can only be used for the recapitalizations of financial firms and only if the ECB requests it before the bailout program expires at the end of June.

The FTSE/Athens Banks Index, which measures the performance of banks traded on the Greek Stock Exchange, fell 1.2 percent in Athens on Thursday, after a 9.1 percent jump on Wednesday. It has fallen 59 percent in the last 12 months since the country’s lenders were recapitalized with private funds.

(Updates throughout with earnings, comment)
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