1 st bank of greece workshop on economies of the eastern european and mediterranean countries

11stst Bank of Greece Workshop Bank of Greece Workshop on Economies of the Eastern European and Mediterranean Countrieson Economies of the Eastern European and Mediterranean Countries

The Global Financial Crisis and SEE: Lessons for The Global Financial Crisis and SEE: Lessons for macroeconomic policy and financial stabilitymacroeconomic policy and financial stability

Charalampos VogiatzisCharalampos VogiatzisAthens, 14 MayAthens, 14 May 20 201010

Session II : Preserving financial stability:Session II : Preserving financial stability:the supervisors’ perspectivethe supervisors’ perspective

Preserving Financial Stability: Preserving Financial Stability: The Supervisors' PerspectiveThe Supervisors' Perspective

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PresentationPresentation

Supervisors, financial stability and the current Supervisors, financial stability and the current crisis : exploring the topiccrisis : exploring the topic

Greek banking groups: a crucial factor for the Greek banking groups: a crucial factor for the stability of the regionstability of the region

Bank of Greece Response as home and host Bank of Greece Response as home and host supervisorsupervisor

Cross-border CooperationCross-border Cooperation

Addressing concerns for Greek fiscal crisis Addressing concerns for Greek fiscal crisis implicationsimplications

ConclusionsConclusions

Financial Stability

Micro threats

Systemically important banks with cross border

activities

(bank originated crisis)

Macro threats

Negative Economic

environment

(fiscal crisis)

Idiosyncratic crisis

General crisis

Exploring the topicExploring the topic

SUPERVISORSBottom up approach

MARKETCONTRIBUTION

CENTRAL BANKSTop down approach

MINISTRIES OF

FINANCE

Home supervisor(solo and

consolidated)

Host supervisor

Lender of the last resort

Stability function

Market Operations

Payment Systems

CrisisOriginator

Crisis ultimate solution

Investors

SovereignSpreads

CDSs

RatingAgencies

Whole sale market

participants

AnalystsMedia

Justified reactionsEuropean Passport

Supervision of systemic

entities Solvency

Liquidity

CrisisManagementEarly detectionBurden Sharing

Acquiring anddisseminating information

Support packages

Bearing the resolution costNationalisations

INTERNATIONAL INSTITUTIONS

EUINSTITUTIONS

ECB

IMFIFIS

BASEL COMMITTEE

CEBS

Executives’incentives

BANKINGGROUPS

Risk management

vstrading

ForwardLooking exit

strategies

Adequacy of systems and

controls

Credit policy

Toxic Assets

ContingencyPlans

Sharing part of the cost

International network policy

Preserving monetary

policy

Preparation for EU

accession

Preserving host countries stability

Adjusting the system in the new Era

Depositors

DepositGuarantee

Scheme

StockExchange

SUPERVISORSBottom up approach

MARKETCONTRIBUTION

CENTRAL BANKSTop down approach

MINISTRIES OF

FINANCE

Home supervisor(solo and

consolidated)

Host supervisor

Lender of the last resort

Stability function

Market Operations

Payment Systems

CrisisOriginator

Crisis ultimate solution

Investors

SovereignSpreads

CDSs

RatingAgencies

Whole sale market

participants

AnalystsMedia

Justified reactionsEuropean Passport

Supervision of systemic

entities Solvency

Liquidity

CrisisManagementEarly detectionBurden Sharing

Acquiring anddisseminating information

Support packages

Bearing the resolution costNationalisations

INTERNATIONAL INSTITUTIONS

EUINSTITUTIONS

ECB

IMFIFIS

BASEL COMMITTEE

CEBS

Executives’incentives

BANKINGGROUPS

Risk management

vstrading

ForwardLooking exit

strategies

Adequacy of systems and

controls

Credit policy

Toxic Assets

ContingencyPlans

Sharing part of the cost

International network policy

Preserving monetary

policy

Preparation for EU

accession

Preserving host countries stability

Adjusting the system in the new Era

Depositors

DepositGuarantee

Scheme

StockExchangeThe players and their The players and their

interactioninteraction

Exploring the topicExploring the topic


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Greek Banks in SEE & CEEGreek Banks in SEE & CEE..

ALBANIA

NBG

ALPHA BANK

PIRAEUS BANK

EMPORIKI BANK

TURKEY

NBG

EUROBANK

FYR MACEDONIA

NBG

ALPHA BANK

SERBIA

NBG

EUROBANK

ALPHA BANK

PIRAEUS BANK

ATE BANK

POLAND

EUROBANK

BULGARIA

NBG

EUROBANK

ALPHA BANK

PIRAEUS BANK

EMPORIKI BANK

ROMANIA

NBG

EUROBANK

ALPHA BANK

PIRAEUS BANK

EMPORIKI BANK

ATE BANK

MARFIN EGNATIA

UKRAINE

ALPHA BANK

PIRAEUS BANK

EUROBANK

Greek Banks in SEE & CEEGreek Banks in SEE & CEE..

At the end of 2009At the end of 2009 24 banks24 banks 2.897 business units2.897 business units 38.811 employees38.811 employees Total loans to customers in New Total loans to customers in New

Europe Europe €€ 447.37.3 billionbillion Profits exceeding Profits exceeding € € 390390 millionmillion

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SEE entities significant both for SEE entities significant both for domestic markets and the Greek groups.domestic markets and the Greek groups.

Greek Banks’ market shares Greek Banks’ market shares in host countriesin host countries

Market Share (% assets)

26,5%29,0%

15,9% 16,3%

28,0%

4,6%1,6% 2,1%

19,8%

6,4%

0,0%

5,0%

10,0%

15,0%

20,0%

25,0%

30,0%

35,0%

Albania Bulgaria Romania Serbia FYROM Turkey Ukraine Poland Total NewEurope

Total SEE

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Greek banking groups credit expansion Greek banking groups credit expansion in the region 3.8% during Q1 2010 (total in the region 3.8% during Q1 2010 (total loans at end of Q1 2010 loans at end of Q1 2010 €€ 49.1 billion) 49.1 billion)

Meeting financing needs of local Meeting financing needs of local economieseconomies

Loans to Customers - 31.3.10

0 2.000 4.000 6.000 8.000 10.000 12.000 14.000 16.000

Turkey

Romania

Bulgaria

Poland

Serbia

Albania

Ukraine

FYROM

Long standing commitmentsLong standing commitments Despite liquidity squeeze funding from Despite liquidity squeeze funding from

parent institutions remained unchanged parent institutions remained unchanged ((€€ 18 billion) 18 billion)

Increase of local deposits by 4.7% during Increase of local deposits by 4.7% during Q1 2010 without increasing deposit Q1 2010 without increasing deposit interest rates interest rates

Loans to deposits ratio improved but still Loans to deposits ratio improved but still high (163% at end of March 2010)high (163% at end of March 2010)

Funding to cross border entities is not Funding to cross border entities is not considered as a liquidity source for considered as a liquidity source for parent institutions parent institutions

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Economic conditions in Eastern Europe Economic conditions in Eastern Europe have been deteriorated since Q4 2008 have been deteriorated since Q4 2008 but in many cases things seem to be but in many cases things seem to be stabilisedstabilised

Positive effects from IMF interventionPositive effects from IMF intervention Less foreign capital flows Less foreign capital flows Depreciating local currencies and Depreciating local currencies and

relevant implications for foreign relevant implications for foreign currency denominated loans and equity currency denominated loans and equity participationsparticipations

Supervisory concernsSupervisory concerns

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Reduction of import demand from the Reduction of import demand from the rest of Europe due to the crisis rest of Europe due to the crisis implicationsimplications

Implications of fiscal crises in home Implications of fiscal crises in home countriescountries Asset quality deterioration on the back Asset quality deterioration on the back of the worsening operating environmentof the worsening operating environment Slow down of credit expansion Slow down of credit expansion Decreased operating income and Decreased operating income and profitsprofits

Supervisory concernsSupervisory concerns


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Active support of the European Active support of the European Bank Coordination Initiative.Bank Coordination Initiative.

Encourage banks to keep their SEE Encourage banks to keep their SEE subsidiaries well capitalized.subsidiaries well capitalized.

Monitoring of fundamental figures on a Monitoring of fundamental figures on a monthly basis.monthly basis.

Suggestions to promote further their Suggestions to promote further their risk management practices and internal risk management practices and internal control systems in the region.control systems in the region.

BoG supervisory responseBoG supervisory response

For entities in SEE….For entities in SEE….

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…….and for the Group.and for the Group Pre-emptive action to increase the Pre-emptive action to increase the

loss absorption capacity of Greek loss absorption capacity of Greek Banks (Tier I> 8%).Banks (Tier I> 8%).

Testing the resilience of the banking Testing the resilience of the banking sector under IMF assumptions.sector under IMF assumptions.

Frequent on-site examinations (e.g. Frequent on-site examinations (e.g. adequacy of loan provisions)adequacy of loan provisions)

Close monitoring of Greek banks' Close monitoring of Greek banks' liquidity positions and contingency liquidity positions and contingency funding policies.funding policies.

BoG supervisory responseBoG supervisory response


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Strong Home/Host co-operation Strong Home/Host co-operation before the crisis….before the crisis….

Bilateral MoUsBilateral MoUs Governor’s Club meetingsGovernor’s Club meetings SEE Multilateral MoU.SEE Multilateral MoU. Joint InspectionsJoint Inspections Exchange of findings reportsExchange of findings reports

Home host cooperationHome host cooperation

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…….and in the aftermath of the .and in the aftermath of the crisiscrisis

Bilateral meeting of Governor’s and Bilateral meeting of Governor’s and Heads of Banking Supervision with Heads of Banking Supervision with the participation of banks’ top the participation of banks’ top management. management.

Speed up the settlement of Colleges Speed up the settlement of Colleges of Supervisors of Supervisors

Arrange Joint Risk Assessment Arrange Joint Risk Assessment issues on an horizontal basis. issues on an horizontal basis.


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…….and in the aftermath of the .and in the aftermath of the crisis (2)crisis (2)

Exchange of visits of home and host Exchange of visits of home and host supervisors supervisors

Comprehensive communiqués Comprehensive communiqués Immediate provision of information Immediate provision of information

for urgent issues - teleconferencesfor urgent issues - teleconferences Participation in EU programsParticipation in EU programs



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Unlike other countries, the challenges Unlike other countries, the challenges facing the Greek commercial banks do facing the Greek commercial banks do not originate in the banking sector. not originate in the banking sector.

This is a fiscal crisis that have negative This is a fiscal crisis that have negative effects on the banking sector unless it is effects on the banking sector unless it is forcefully addressed in the coming forcefully addressed in the coming months. months.

Greek commercial banks proved sound Greek commercial banks proved sound and resilient and resilient

Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implications

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Credit risk higher but not acceleratingCredit risk higher but not accelerating More conservative credit policies and More conservative credit policies and

higher provisions higher provisions Market risk exposure containedMarket risk exposure contained Liquidity position under pressure but Liquidity position under pressure but

manageable thanks to ECB manageable thanks to ECB EffectiveEffective state support planstate support plan


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SE Europe more of an opportunity SE Europe more of an opportunity than a challenge. Greek ethan a challenge. Greek eentities in entities in the region well funded and capitalized the region well funded and capitalized to reduce contagion risk to reduce contagion risk

Intensified on site examinationsIntensified on site examinations Communication with top management Communication with top management

and treasurers of banks almost on a and treasurers of banks almost on a daily basisdaily basis


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Banks required to develop a new Banks required to develop a new strategy for the new erastrategy for the new era

Involvement of Board of DirectorsInvolvement of Board of Directors Exit plansExit plans Increased frequency of reportingIncreased frequency of reporting Improve systems and controlsImprove systems and controls



Joined IMF-EC-ECB plan:Joined IMF-EC-ECB plan: Credible plan of Credible plan of €€ 110 billion which 110 billion which

addresses funding needs of Greece for addresses funding needs of Greece for the next crucial years the next crucial years

Political will to implement the strict Political will to implement the strict austerity measures. austerity measures.

Stability fund with Stability fund with €10 €10 billion available to billion available to further boost banks’ capital if neededfurther boost banks’ capital if needed

Regular reviews of the Greek banking Regular reviews of the Greek banking system by experts of the three system by experts of the three

institutionsinstitutions

Addressing concerns for Greek fiscal Addressing concerns for Greek fiscal crisis implicationscrisis implicationsIn additionIn additionECB decision for the eligibility of ECB decision for the eligibility of Greek Government BondsGreek Government Bonds

Expansion of state plan by Expansion of state plan by € 15 € 15 billionbillionECB ECB decidecision sion to intervene in public to intervene in public and private debt markets to ensure and private debt markets to ensure liquidity in financial segments that are liquidity in financial segments that are dysfunctional.dysfunctional.

EU EU packagepackage of of € € 500billion plus IMF 500billion plus IMF contribution of 200-250 billioncontribution of 200-250 billion


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Europe needs a fundamental overhaul of its Europe needs a fundamental overhaul of its financial stability architecture that allows its financial stability architecture that allows its citizens to enjoy the benefits of financial citizens to enjoy the benefits of financial integration and protects them against the kind integration and protects them against the kind of twin fiscal-financial crises that are currently of twin fiscal-financial crises that are currently afflicting several member states. The reform of afflicting several member states. The reform of the supervisory and regulatory framework that the supervisory and regulatory framework that is currently before the European Parliament is is currently before the European Parliament is very important, but takes us only half the way. It very important, but takes us only half the way. It needs to be matched by an integrated EU crisis needs to be matched by an integrated EU crisis management and resolution framework.management and resolution framework.

Conclusions

Dominique Strauss-Kahn Dominique Strauss-Kahn

Brussels, March 2010 Brussels, March 2010

Thank you!Thank you!

Charalampos VogiatzisCharalampos VogiatzisDeputy DirectorDeputy DirectorBank of Greece Bank of Greece

Department for the Supervision Department for the Supervision of Credit and Financial Institutionsof Credit and Financial Institutions


1 st bank of greece workshop on economies of the eastern european and mediterranean countries

Documents

greek groups

current crisis

topicgreek banking groups

regionbank of greece

greek banks market shares

host countries

crucial factor

end of q1