Greek banks at an inflection point18 OCTOBER 2019
ANTONIOS KOULEIMANIS
SENIOR MANAGER - TRANSFORMATION SECTOR
GROUP STRATEGY
EUROBANK
Table of contents2
Table of Contents Page
The impact of the crisis – brief macroeconomic overview 3
Greek Banking: Liquidity 10
Greek Banking: Asset Quality 15
Greek Banking: Capital 19
Greek Banking: Profitability 24
Disruptive technology 32
The impact of the crisis
3
BRIEF MACROECONOMIC OVERVIEW
198206
217228 230
243251 250
239226
205190 184 186 185 184 187 191
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Severe economic repercussions4
Real GDP drops by 26.5% (2007-2013) - € bn
-26.5%
Source: AMECO
Fiscal and C/A imbalances corrected
Fiscal primary balance turns to surplus
C/A deficit virtually eliminated
5
-5.4
-10.1
-5.3
-3.0-1.5
0.4 -0.1 0.7
3.7 4.2 4.3 4.1 3.9
-15.1
-12.3-11.4
-10.0
-3.8-2.0-1.6-0.8
-1.7-1.8-2.9-2.7-2.6
% GDP % GDP
Source: AMECO Source: AMECO
Competitiveness improving6
Nominal unit labor cost
101.1100.0
83.4
2010 2011 2012 2013 2014 2015 2016 2017 2018
Euro area
Greece
Index 2010=100
Source: AMECO
Asset prices collapsed but now on recovery trend
Residential Real Estate Price Index
ATHEX Composite Price Index
7
260.2
152.1163.7
-42%
5,179
440895
-90%
Source: BoG Source: Bloomberg
Greek benchmark yields narrow significantly
8
Greek 10yr bond yields jump on fears of Grexit
37.1
19.2
1.6
Grexit fears peak
Capital controls
(%)
Source: Bloomberg
Main challenges for ongoing economic growth
Remain true to fiscal commitments while negotiating lower
primary surpluses
Make Greece a more attractive investment destination, aligning
the growth model to rely on exports, FDIs and investment
Continue with the Privatization commercialization of State assets
Continue with and accelerate public administrative reforms
Restore confidence in the banking system
Improve policy credibility lowering Greek risk premium
9
Greek Banking: Liquidity
10
DEPOSIT FLOWS
DELEVERAGING
EUROSYSTEM DEPENDENCY
Liquidity squeeze triggered by Grexit concerns
11
Deposits gradually return after unprecedented flight242.0
Jun-12150.6
Sep-14164.7
Jul-15120.8
Apr-17119.0
Aug-19139.7
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
2nd program stabilization
Grexit fears build-up leading to
double elections
Grexit fears renewed leading
to capital controls
3rd program stabilization
Gradual recovery
Source: BoG
Deleveraging slows and Eurosystem support normalizes
Banks deleverage albeit at declining rate
Loans-to-deposits ratio well below 100%
12
253.4257.7248.5227.7 217.9 212.0204.3195.2 184.0 170.3 161.2
4.1%
1.7%
-3.2%-4.0%-3.9%
-3.1%-2.0%-1.5%-0.8% -1.1%
-0.2%
Credit balances
Total credit expansion
Ba
lan
ces
(€b
n)
Gro
wth
ra
tes
(yo
y%)
126.5
110.7
97.894.6
120.0116.9 118.7 117.3
4Q16 4Q17 4Q18 1H19Greece Euro-area
(%)
Source: BoG Source: ECB
Eurosystem support diminishes13
ELA reached zero for the entire sector
45 4356
107
127 121108102
8775
6759 54
4234
2513 12 11 8 8
2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q18 2Q18
ELA
ECB
€bn
Source: BoG
Liquidity at an improving trend
Main drivers
Deleveraging
Return of deposits
Interbank
Capital raisings
Sale of assets
Covered bond and Tier II issuances
Declining trend still there
ELA exposure at zero
Deposits return still
Deleveraging continues albeit at slower pace
Further Tier II issues probable
14
Greek Banking: Asset Quality
• NPE EVOLUTION
• BANKS’ TARGETS TO REDUCE NPE BALANCES
• SECTOR-WIDE INITIATIVES
15
Asset quality deteriorates… 16
NPEs explode to more than 50% of the loan book
25.638.4
52.368.0
90.9 97.7106.5 104.8
94.481.8 75.4
10.1%14.9%
21.1%
29.9%
41.7%46.1%
52.1% 53.7% 51.3% 48.0%43.6%
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Jun-19
NPEs
NPE ratio
€bn
Source: BoG
106.7
81.7 79.973.2
25.7
0
20
40
60
80
100
120
Jun-16 Dec-18 1Q19 Dec-21
Total market Systemically significant banks (solo)
-€47.5bn
… but banks vow to reduce NPEs by €47.5bn by 2021
17
Significant banks to reduce NPEs to c. €25bn by 2021
1
1. Based on significant banks’ FY18 and 1Q19 reporting. Includes Euriobank’s accelerated NPE reduction plan
Source: BoG, Greek significant banks’ reports
“Hercules”: a plan to relieve banks’ B/S from the NPE burden
“Hercules” is designed to assist banks in securitising and moving non-performing loans off their balance sheets.
Greek State will be remunerated in line with market conditions for the risk it will assume by granting a guarantee on securitised non-performing loans.
Under the scheme, an individually managed, private securitisation vehicle will buy non-performing loans from the bank and sell notes to investors.
The State will provide a public guarantee for the senior, less risky notes of the securitisation vehicle. In exchange, the State will receive a remuneration at market terms.
The objective is to attract a wide range of investors and to support the banks in their ongoing efforts to reduce the amount of non-performing loans on their balance sheets.
18
Asset Protection Scheme (APS) not considered State Aid
Greek Banks: Capital
• BANKS WENT THROUGH THREE CYCLES OF RECAPITALIZATION
• LATEST STRESS TEST (2018) DID NOT LEAD TO FURTHER CAPITAL RAISINGS
• GREEK BANKS APPEAR ADEQUATELY CAPITALIZED CURRENTLY
19
Dec 20121st stress test
(by BoG )
Apr 20131st
recapitalization
Mar 20142nd stress test
(by BoG)
Apr 20142nd
recapitalization
Oct 2014 3rd stress test
(by ECB)
Oct 2015 4th stress test
(by SSM)
Nov-Dec 2015 3rd
recapitalization
1st
Re
cap
ita
liza
tio
n
- Piraeus Bank: € 8.4bn- National Bank:€ 9.8bn- Alpha Bank : € 4.6bn- Eurobank : € 5.8bn
2n
d
Re
cap
ita
liza
tio
n
- Piraeus Bank: € 1.8bn- National Bank:€ 2.5bn- Alpha Bank : € 1.2bn- Eurobank : € 2.8bn
3rd
Re
cap
ita
liza
tio
n
- Piraeus Bank: € 4.6bn- National Bank:€ 4.5bn- Alpha Bank: € 2.6bn- Eurobank : € 2.0bn
Banks recapitalize three times…20
€ 64bn from private and State sources
21
Capital raisings of the 4 Greek Significant banks
28.6
8.3
13.7
50.6
Capital raisings
2015
2014
2013
Incl. non-core banks of the first recap , total capital raised stood at: €64bn
HFSF contribution: € 22.5bn(shares with special voting rights)
HFSF contribution: € 5.4bno/w:Common shares: € 1.4bnCoCos: € 4.1bn (o/w € 2.0bn repaid)
No HFSF contribution
5th stress test doesn’t lead to capital increases
22
Greek banks pass, even under the adverse scenarioStress test 2018 results
BankCET1 ratios starting level (end-2017, IFRS
restated figures)
Estimated 2020 CET1 ratio under
baseline scenario
Estimated 2020 CET1 ratio under adverse scenario
Capital depletion under adverse
scenario
Alpha Bank 18.25% 20.37% 9.69% -8.56pps
Eurobank 17.93% 16.56% 6.75% -8.68pps
NBG 16.48% 15.99% 6.92% -9.56pps
Piraeus Bank 14.85% 14.52% 5.90% -8.95pps
Greek banks adequately capitalized
23
CET1 ratio 100bps above EU average – asset quality a concern
9.0%
15.8%14.3%
12.7%11.9%
12.7%
18.6%
Greece EU Italy Spain Portugal Ireland
DTC (57%)
Source: ECB, Greek significant banks’ reporting1. ECB provides a number of 15.3% - however the Greek banks reporting derives the number depicted above
1
Greek Banking: Profitability
• DELEVERAGING
• BANKS’ TARGETS TO REDUCE NPEBALANCES
• SECTOR-WIDE INITIATIVES
24
Credit to private sector contracts25
Diminishing balances as a result of reduced demand and write-offs; However, rate of decline decelerates
253.4 257.7 248.5 227.7 217.9 212.0 204.3 195.2 184.0 170.3 159.9
4.1%1.7%
-3.2% -4.0% -3.9% -3.1%-2.0% -1.5% -0.8% -1.1% -0.1%
Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Aug-19
Credit balances Total credit expansion
Ba
lan
ces
(€b
n)
Gro
wth
ra
tes
(yo
y%)
Source: BoG
10,838 10,752 10,1098,422 9,160
8,332 8,082 8,145 7,8275,926
3,351
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
(€ m)
Post-sector consolidation
Core income stagnant26
Significant banks’ core income suffers from deleveraging, NPE management
Pre-sector consolidation
Source: Significant banks’ reporting
Operating expenses decline27
Significant banks respond to weakening revenues by reducing costs
6,066 5,777 5,630 5,439
6,681
5,382 5,096 4,708 4,291 3,901
1,870
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
(€ m)Post-sector consolidation
Pre-sector consolidation
Source: Significant banks’ reporting
Employees and network downsize
Employee evolution (‘000) Branch network evolution
28
65.763.4
60.057.0
51.2
45.7 46.142.641.7
39.4
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
4,0794,005
3,8473,629
3,109
2,6882,547
2,3322,168
1,980
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: BoG
Cost of Risk (CoR) declines as NPE flows stabilize
283
200189 189
211
169
191
FY17 1Q18 1H18 9M18 FY18 1Q19 1H19
29
Despite the decline to below 200bps, CoR1 shows resilience
(bps)
Source: Significant banks’ reporting, own calculations1. Defined as loan loss provisions over average net loans
Pre-provision Income stagnant30
Despite OpEx and CoR reduction, PPI remains close to 2016 and 2017 levels
6,0745,256
3,677
2,150 2,4072,752 2,763
3,836 3,8253,179
1,942
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
(€ m)Post-sector consolidation
Pre-sector consolidation
Source: Significant banks’ reporting, own calculations
Pre-tax earnings pick-up31
Slight rise in income coupled with OpEx and CoRcontainment leads to an increase in EBT
2,438 1,081
-32,584
-6,195 -5,173-7,591
-10,671
69
-985
484 560
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1H19
(€ m)Post-sector consolidation
Pre-sector consolidation
Source: Significant banks’ reporting, own calculations
Disruptive Technology
• NEW TECHNOLOGIES CHALLENGE TRADITIONAL OPERATING MODEL
• NEW CHANNELS, PRODUCTS AND CUSTOMER EXPERIENCE
32
Digital banking here to stay
New regulation (PSD2) allows disrupting FinTech to invade the banking space
Banks respond with large-scale investment to mitigate the threat
Customer preferences change:
Mobile banking number of transactions up 2,096% since 2014
E-banking number of transactions up 161% since 2014
Only 20% of cash transactions go through the branch vs. 40% in 2014
39% of cash transactions are done electronically (e or m) vs. only 19% in 2014
Ironically, capital controls accelerated the use of electronic channels – especially among older age groups
33
Disruptive technologies create a new competitive environment
Main challenges for Greek banks
Improve asset and capital quality (NPEs & DTA) via various
initiatives
Restore credit ratings and tap unsecured bond market
Utilize improving liquidity to support the growth of the Greek
economy
Reverse deleveraging trend and boost profitability
Address new competitive environment
34
Summing up
Today we touched upon:
1. The impact of the crisis on the banking sector
2. The state in which the sector is today
3. The main challenges and opportunities for Greek
banks going forward
THANK YOU FOR YOUR ATTENTION
35