Banks will have to issue bonds this year

Bad loans are not the only challenges Greek banks are facing, according to Fitch Ratings. Securitizations will mean banks will have to issue bonds while operating profits will stay weak, Pau Labro, director of Financial Institutions at Fitch, tells Kathimerini.

“The pandemic interrupted the positive trend of Greek banks, delaying banks’ plans to reduce their legacy problem assets and potentially increasing new inflows of impaired loans. For 2021, we expect that a moderate economic recovery in Greece and the banks’ de-risking plans will support the banking business environment, although the impact from the pandemic will continue pressuring certain business sectors, such as tourism, transport or construction,” he states.

“Capitalization remains vulnerable to asset-quality shocks in the current environment, although the securitizations if successfully executed will materially lower capital encumbrance from unreserved impaired loans (as was the case for Eurobank in June 2020). The securitizations will also result in significant one-off losses for banks, affecting the capital buffers of the sector,” Labro notes.

“Capital buffers will also be negatively affected by regulatory impacts, most notably the continued phaseout of the IFRS 9 transitional adjustments. We expect banks to issue subordinated debt if market conditions are favorable, as some entities did in 2020, and continue implementing capital accretive actions to enhance total capital buffers, also bearing in mind that there is a stress test exercise this year,” he estimates.

“Excluding the negative impact from the securitizations, we also expect operating profitability to remain structurally weak in the medium term as the loan impairment charges will remain high, despite some front-loading of provisions in 2020. Pressure on interest rates (particularly in the business segment) and lower interest accruals from impaired loans following securitizations will reduce the net interest income. On the positive side, we expect higher fee income from a recovery in activity, still significant trading gains benefiting from the accommodative monetary policy, and lower recurring operating expenses as the banks continue implementing restructuring programs. State guarantees could also be supportive for new lending volumes to businesses in 2021,” Labro points out.