Gov’t fails to appease markets

Effort to ease fears over local banks has backfired, as investors see it as acknowledgment of problem

Pressure continued yesterday on Athens-listed bank stocks, with their sectoral index dropping to a new 32month low, as the market remains skeptical about the government’s intervention to restore calm.

The Athens Exchange (ATHEX) benchmark has lost 7.4 percent in the last three sessions. The banks index has followed up its 24 percent slump in September with a fresh 15 percent decline in the first seven sessions in October, sending the capitalization of the four systemic banks below 5 billion euros between them, from 8.7 billion at the start of the year.

The government’s attempt to appease investors by publicizing its intention to launch a asset protection scheme that may involve state guarantees has brought about the opposite result. Given that the plan is far from ready and is running into a series of obstacles, such as legislation regarding state subsidies, the market has interpreted it as a public acknowledgment of the problem by the authorities.

On that basis the market has not just ignored the new pledges banks are making to the Single Supervisory Mechanism (SSM) regarding a substantial reduction of bad loans from 47.7 percent of all loans today to under 20 percent by end-2021, but it is already acting as if it has taken their failure for granted.

Bank managers are seeking a catalyst that would reverse the negative sentiment; some lenders are considering issuing their third-quarter financial results earlier than planned, along with the detailed plans for the reduction of nonperforming exposures discussed with the regulating authorities.

As domestic analysts note, concerns over the banking sector do not appear to be subsiding; instead pressure has spread to other stocks too, with foreign investors liquidating their positions, ignoring the healthy fundamentals of other listed companies in their effort “to sell off what can be sold.”

Consequently the Greek stock market’s index has fared the worst in the developed world since the start of the year, falling 21 percent, with its peers in China (down 18.7 percent) and Turkey (17.7 percent) following.