Published: April 30, 2010
Regional banks should prepare for the worst, warns analyst.
Greece’s economic and financial crisis may threaten stability in the banking sectors of South Eastern Europe, where several Greek banks have extensive operations, according to analyst IHS Global Insight.
The impact of the Greek debt crisis is being felt in the banking sector as the economic outlook worsens, affecting loan quality; as ratings downgrades of Greek companies and banks increase funding costs; and as the price of government and other bonds held as collateral by Greek banks falls, thus weakening capital ratios and the ability of banks to lend.
IHS banking analyst Toby Wight said this is likely to extend the degree to which Greek banks can provide liquidity and capital support to their subsidiaries elsewhere in the region, notably – but not exclusively – Bulgaria and Serbia.
In Bulgaria, four of the top 10 banks are subsidiaries of Greek banks and account for 25% of total bank assets in the country, whereas in Serbia a similar but less pronounced situation exists in which two of the top 10 banks are Greek-owned and account for 11% of total assets.
Some of the Greek banks involved – including National Bank of Greece, Eurobank EFG and Piraeus Bank – are signatories to the European Bank Coordination Initiative (EBCI), under which foreign banks have committed to support their subsidiaries in Eastern Europe, although in the case of Serbia this commitment had already been watered down even before the outbreak of the Greek crisis.
Wight believes that further weakening of Greek bank adherence to the EBCI now seems likely, with adverse consequences for banks in neighbouring countries.