Investors Seen Returning to Greece

Prospects for a Greek recovery are seeing investors returning in the hopes profits will too, Piraeus Bank Chairman Michalis Sallas says.

ATHENS – With Greece expecting a recovery this year from a crushing economic crisis, the chairman of the country’s biggest bank said he expects investors seeing a chance to cash in will be putting money into the still-troubled institutions.

“The prospective reduction of non-performing loans and the continuing decline of deposit rates in Greece mean that profits will rise significantly,” Piraeus Bank Chairman Michalis Sallas told the financial news agency Bloomberg in an interview at his office.

Rocked by big pay cuts, tax hikes and slashed pensions, so many Greeks have been unable to pay mortgages, credit cards and loans that almost 42 percent of them in some categories have been uncollectible even though banks have turned to outside collection agencies in a frantic attempt to bring in more cash.

Piraeus Bank Chairman Michalis Sallas
Piraeus Bank’s Michalis Sallas

The banks have also received 41 billion euros ($56.42 billion) in state recapitalization funds after being brought into difficulty when a former government stiffed investors with 74 percent losses.

The government plans to inject them with at least another 6.4 billion euros ($8.8 billion) although the country’s international lenders believe the figure could be much higher.

As the country’s deficit narrows and output stabilizes, banks are likely to recover more than they previously projected from struggling borrowers, Sallas said. Prime Minister Antonis Samaras promised relief for heavily-indebted households but reneged.

Among the bad loans the banks have is 250 million euros ($344 million) owed by Samaras’ New Democracy Conservatives and its coalition partner, the PASOK Socialists, who aren’t paying at the same time the government insists that others pay their loans.

The New York Times last year reported that Sallas authorized the bank to make risky loans as well to people and businesses with ties to Piraeus, whom he has taken from fourth to first place in Greece.

The Times, however, said it was a rise marked by some shady dealing and that critics said Sallas “has pushed the boundaries of proper banking too far and that his maneuvering in the murky world of Greek finance, where the interests of bankers, the media and politicians often commingle, should be more closely scrutinized.”

“Piraeus has long used problematic methods that call for investigation,” Costas Lapavitsas, a political economist at the University of London who follows banking and politics in Greece told the Times.

“What concerns me is that Piraeus has emerged as the leading bank in Greece not because it improved these methods. The old regime is just adapting to the new conditions, and for me that is a sign of sickness and not health.”

Piraeus, the country’s second-biggest bank by assets, last month raised 1.75 billion euros ($2.4 billion) in new capital from foreign investors in the latest sign Greek lenders are bouncing back from the sovereign-debt crisis.

It also sold 500 million euros of three-year bonds on March 18 in the first public debt sale from a Greek lender since 2009, according to data compiled by Bloomberg.

“Those who invest in Greece are not just looking for short-term gains,” Sallas said. “They include institutional investors, like pension funds and big, long-only funds.”

The Greek economy will probably receive a further boost next year when banks complete their de-leveraging and begin to increase lending to companies and consumers, said Sallas, who trained as an economist in Germany.

“We see a real improvement, especially when it comes to fiscal discipline, but we need to do more to bolster the competitiveness of Greek companies,” Sallas said. “Domestic consolidation is necessary to create economies of scale and companies which can compete in the international markets.”

Greek Finance Minister Yannis Stournaras said earlier this month his country is preparing for a small issuance of three- or five-year bonds, in the first semester of this year.

“Everything indicates that this inaugural bond issue of the Greek state will have a positive reception from international investors, underscoring their confidence in economic recovery,” said Sallas, a former government official and Chairman of the stock exchange.

Sallas, whose bank has taken over six other lenders in the last 18 months, said Piraeus has set aside 14 billion euros to cover 27 billion euros of troubled credits, amounting to about a third of its loan book.

He says his bank probably won’t need additional capital after the European Central Bank asset quality review and stress-test later this year.

“The Bank of Greece applied a very conservative approach, and, I believe, has taken precautions to align its methodology with that used by the European Central Bank,” he said. “In any event, in Piraeus we have sufficient buffers to accommodate any eventuality.”

He was referring to stress tests conducted on Greek banks that showed that despite the rosy optimism from some quarters surrounding a recovery, including a looming primary surplus, that it might still be risky business in Greece.