Download Mr Chairman, there is already a year and a half since

Mr Chairman, it has been already a year and a half since the crisis began in the
U.S. How do you see the situation evolving?
I believe the recovery will come from the same place that the crisis began. For the time
being though, I don’t see a great deal of optimism in the market, particularly judging by
the way Wall Street reacted to the recent statements made by the Treasury Secretary.
However there are some positive signs around, for example in shipping, in the
transportation of dry cargo, where we are getting indications of a reaction after the large
fall in freight rates we experienced. There is however, a long way to go to reach
stabilization in the markets.
What did the banks do wrong that lead to this crisis?
The blame attributed to banks for the crisis has been exaggerated. We reached this
situation because the 1% interest rates in the US forced banks to pursue higher returns
through new-found structured products. Deposits were not yielding enough, the clients
were asking for more and the banks acted in response to this demand. A small exposure
to those products would not have been a problem. But there were excesses from some
banks and so it came down to the regulators to control the situation and ultimately, they
were not successful.
Do you believe the crisis has peaked?
I think we are nearly there.
During Alpha Bank’s General Meeting a month ago, you stated that a minimum of
six months will be needed for the situation to begin stabilising. Do you still
believe this?
Yes, I believe that at least six months are needed for the gradual mobilization of the US
economy. As soon as this takes effect, Europe will follow suit and, at some point
afterwards, Greece.
The outlook for the Greek economy is increasingly negative. The European
Commission has lowered the economic growth rate forecast to 0.2%. What will the
consequences be if these forecasts are confirmed?
What matters is not whether we will be at 0.2% or 0.5%, but whether we go up or down.
Notwithstanding that, the growth rate is expected to fall to a much lower level,
from 3.5% and 4% previously.
I do not necessarily consider this level to be bad. It‘s about time to realize that we can’t
always move upwards. And of course there will be consequences, which will be felt
gradually. For example, the decline of inflation to 1.8%, an all-time low for our country, is
a development that will set the tone for any increase in wages and services.
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The Greek economy is today facing a funding problem. Although your recent
intervention created positive momentum and led to the participation of the other
banks in the government package for the support of the economy, we have not yet
seen such liquidity flowing to the market.
Indeed, there was an initial hesitation from some banks, as to their participation in the
package, but this was subsequently overcome and the latter has now been widely
accepted. The fact that the liquidity provided in the scheme has not yet reached the
market can be explained to some degree by the complexity of the operation and the
coordination required between the parties involved. Recently, Alpha Bank made use of
an initial €1.5 billion from the package, and within the second quarter of the year we will
probably draw upon the largest part of the €5.5 billion earmarked for us. This amount will
complement our current liquidity so as to allow us to increase our lending at a double
digit growth rate in 2009.
Lending in Greece or in the Balkans? The Greek Government and the Bank of
Greece seem to be against the use of the liquidity outside Greece.
It would be a big mistake if, due to the current market conditions, Greek banks were
forced to retract from the Balkan region, leaving behind 8,000 Greek companies (who
are operating in the region and were among the first to invest there) without support. It is
my belief that the expansion of Greek banks into Southeastern Europe has been and
remains a core strategic decision. This is further confirmed by the fact that Greek banks
currently control ca. 20% of the Balkan market, despite competition from much larger
Austrian, French and Italian banks. If Greece does not rise to the challenge, it will lose
the leading status it enjoys and aspires to enhance in this region. This, of course, does
not mean that Greek banks have not made mistakes in their effort to increase their
penetration in the region. I should note here though, that one of the reasons Greek
banks have experienced no exposure to toxic assets has to do with their focus on
achieving high returns from banking business in the Balkans. At Alpha Bank we feel
satisfied with the quality of our loan portfolio in the Southeastern European countries, as
firstly we expanded mainly via organic growth thus avoiding having to pay any goodwill,
and secondly our business is mainly focused on corporate lending.
Does this mean that the Greek taxpayer’s money will fund the growth of such
countries?
Let me reiterate that any funds received from the total allocation of the €28 billion will
work alongside our current liquidity. In addition, we must bear in mind that any profits
made in the region by Greek businesses will return to Greece.
These countries are dependent on the inflow of foreign funds. Where will these
funds come from in order to prevent any systemic risk in Southeastern Europe?
You are right; the key question here is how these local economies will be bolstered,
given their current dependency on the inflow of foreign funds, mostly from the banking
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industry. It is obvious that the solution cannot be solely restricted to the support of
foreign banks, through their subsidiaries, and via liquidity support schemes of their
countries of origin.
This would impact disproportionately on the countries of Southeastern Europe where
foreign banks have a limited presence and would also create a competitive
disadvantage for Greek banks, for instance if the respective state schemes for Austrian
or French banks allowed them to channel resources to Southeastern Europe. The
solution lies in the direct support of these economies by the EU and other international
organisations, such as the EBRD, in order to safeguard their course of convergence.
This point of view has been reflected in recent comments by various European officials.
Is the €28 billion enough? The reason I ask is that there have been suggestions
about the creation of a “Bad Bank” in Greece.
I believe that the support package structured by the Bank of Greece is sufficient to cover
our needs. The establishment of a structure that buys out problematic assets, i.e. bad
loans etc., which has been considered in the U.S. and is under examination by the EU,
aims to deal with the so-called toxic assets in order to address the important credibility
issues of certain banks. However, questions remain as to which of these products will be
bought and at what price. As far as Greece is concerned, I believe that this issue is not
of immediate concern, as we are only just starting to make use of the €28 billion from
the Government support package.
The “Βad Bank” idea is considered to be an alternative way of coping with the
crisis to State support, similar to bank nationalizations. What is your view on
nationalizing the banks?
I believe that such a solution is more pragmatic for weathering the crisis than the
establishment of a “Bad Bank”. In this case, the State dictates that a bank with
significant exposures must perform a capital increase and if it cannot find the
appropriate funds, the State will contribute to its equity, thus becoming a shareholder of
the bank.
So, the Banks enjoy their profits while the taxpayer makes a loss?
The annual dividend on the preferred shares to be received by the State from the banks
that are participating in the respective pillar of the €28 billion package is 10%. I do not
consider 10% as being low. The question is when will the system balance out so that we
can repay this expensive capital at the earliest possible time?
The market is awaiting with great interest for the annual results of the Greek
banks. What should we expect?
For the first time this year, after a long time, interest is shifting from growth and
profitability rates to focus exclusively on the health of the balance sheet, that is, liquidity,
capital and provisioning adequacy. The message from the market during the last few
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months has been clear: record your figures in such a way that we can draw better
conclusions about the banks’ soundness. This is the only way to restore investor
confidence in the accuracy of the reported balance sheet figures.
You place emphasis on provisioning, which was also reflected in the 9month
results, when Alpha Bank differentiated itself from the other banks by significantly
increasing its provisions for bad debts. What does this indicate?
As I have told you, the adequacy of provisioning and of capital are the main indicators of
health for a bank, particularly under the current market conditions. At Alpha Bank we
decided to depart from the descriptive rationale imposed by the International Financial
Reporting Standards, that leads to provisioning “after the event” and instead, act
proactively by strengthening our provisions. Allow me here to be absolutely clear: in the
next quarters we expect to see a significant deterioration in loans, both corporate and
retail. And this comes from a bank where prudent credit risk management runs in its
veins.
Thus, in this environment of deteriorating credit quality, we consider it wise in a year of
high profitability, to considerably increase the provisions for the entire year to levels
markedly higher than 1% of our outstanding loans, which also corresponds to the level
of provisioning performed by Greek banks during the last 30 years. In doing so, on the
one hand we build our defences should things evolve worse than expected, and on the
other we give an indication to the market that we will emerge from the crisis as winners.
On this point, we have the backing of the central bank and we hope that other banks will
follow our lead for the benefit of the Greek banking system as a whole.
That is to say you would not hesitate to show losses for the fourth quarter of
2008?
Why not? Since this year has seen three profitable quarters, why not reflect in the fourth
quarter the passage to the new level of provisioning and thus start with a clean slate in
2009?
Don’t these provisions decrease your profitability and therefore your ability to
distribute dividends?
Despite the increased provisioning, Alpha Bank was sufficiently profitable in 2008,
allowing us to pay a small dividend to our shareholders. We consider the payment of
dividends to be of the utmost importance, since for the thousands of our Greek retail
shareholders this income is part of their financial planning. Moreover, it is also of
symbolic importance, since we are the only Greek listed corporation to have made
uninterrupted dividend payments since 1948, just after the Second World War. I
therefore believe that the distribution of a suitable dividend, taking into account current
market conditions, will contribute to the cohesion of the system while enhancing the
confidence of the Greek retail shareholders who have supported Greek banking stocks
during the last few months.
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The current economic situation makes the future more uncertain. What should the
clients and investors of Greek banks expect after the end of this crisis?
The period which we are currently facing is particularly important, when three basic
conditions will be tested in order for the banking system to emerge from this crisis with
the least possible damage. First, the banks will have to admit to and correct any
excesses in their business plans, regarding either insufficient provisioning vis-à-vis
underwritten risks, or aggressive forms of financing. Moreover, they must prove that they
can return to the traditional banking model, namely through the widening of their deposit
base, which in turn will allow for the conservative growth of their portfolios. This banking
model has contributed to economic growth for decades, without disruption, and has
provided constant returns to shareholders. Finally, we will have to wait for the effects of
the economic stimulus programs to work through the system - which is occurring
simultaneously in almost all the developed countries - and aim to stimulate demand and
investments.
In the event that the United States manages to reverse the negative course of their
economy, thus giving support to Europe, I have well-founded hopes that those Greek
banks that are able to quickly adapt to the new environment will disprove the pessimists.
Have no doubt that when this prevailing sense of panic in our region recedes, and the
situation is normalised, the winners are going to be those who prudently steered through
the crisis and dared to take advantage of the opportunities which were presented. I am
optimistic that the Greek banks have these characteristics and that as soon as we exit
the crisis they will be able to contribute decisively to the progress of the economic
convergence of the countries of Southeastern Europe.
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