National Bank of Greece (NBG) has found itself with an unprecedented, for decades, amount of surplus liquidity in funds that have not been channeled into the economy. In fact, in the first quarter of the year, NBG is the only systemic bank to show a reduction in loan balances.
From 2016 until today, NBG has been systematically increasing deposits, from quarter to quarter, but this is not reflected in a corresponding increase in loans. On the contrary, loans have been declining. At the end of 2016, the lender had a loan balance of 31.7 billion euros and deposits of 36.8 billion euros, while in March the loan balance shrank to 27.6 billion euros despite the jump in deposits to 44 billion euros.
In other words, from the end of December 2016 until today, at a time when the Greek economy is trying to recover, the balance of loans in Greece decreased by 4.1 billion euros despite the increase in deposits by 7.2 billion euros. Thus, the difference in deposits from loans, from 5.1 billion in 2016, jumped to 16.2 billion euros at the end of March, unprecedented surplus liquidity in recent decades. In addition to growth in deposits, the ECB has offered many extraordinary financing tools to banks, including negative interest rates (ie the bank is paid to raise liquidity) to channel money to businesses and households.
NBG seems to be failing in its role as a mediator, to transform deposits into loans. At a critical juncture for the country, it is unable to meet its historic role as a bank with a special role in the banking system and financing the economy. The bank is lending, but less than what it is being repaid, at a time when restarting the economy requires accelerating credit growth.
Its performance in issuing new loans is the lowest among the four systemic banks, and even on TEPIX II, a program in which the Greek government subsidizes interest rates. NBG has been reduced to playing a secondary role: loans issued under TEPIX exceed 350 million euros per bank for Alpha, Piraeus, and Eurobank, totaling 1.13 billion euros. National Bank's disbursements were just 160 million euros, less than half issued by its peers.
Business as usual
The loss of National Bank's traditional role has become more evident with the new crisis caused by the pandemic. In the first quarter of 2020, a tough time for businesses due to the sweeping effects of the coronavirus, the National Bank continued the ... "business as usual". It was the only systemic bank to show a reduction in loans carried: at the end of March, bank loans in Greece amounted to 27.6 billion euros compared with 27.9 billion euros at the end of 2019, while at the same time deposits grew by 2 billion euros.
In this difficult time, NBG has shown no flexibility or willingness to take on a more active role, albeit symbolically, in financing the economy. At the same time, complaints made against the lender from businesses have been growing for its limited lending and over-the-top demands, effectively blocking new loans.
NBG's abstention from lending is not due to conditions but part of the planning of the Mylonas administration, which aims at using liquidity in bonds and investment products. The business plan presented by the bank in May 2018 gave a lower priority to financing businesses and households while pumping liquidity mainly into the bond markets.
The business plan aims to have issued total loans of 30 billion euros in 2022, versus 30.1 billion euros at the end of 2018. That is, the bank is not contributing to credit expansion. At the same time, that bank's bond portfolio is seen rising to 13.5 billion euros or 31 percent of assets by 2022 (from 8.8 billion euros at the end of 2018).
National Bank either does not believe that there are creditworthy companies and households, after a decade of crisis that has preceded, or has opted for the safety of government bonds after having taken steep losses from bad loans, like all banks in Greece.
However, there seems to be a lot of administrative hiccups, as many key executives have retired in recent years. They were staff members that had cultivated the bank's traditionally strong ties with the business world and have not been replaced by a new effective team.
At the same time, there have been several reports concerning a large number of deals going to consultants, expensive studies being commissioned to external partners, the weakening of the bank's departments, the departure of experienced executives and marginalization of others, resulting in the bank being unable to find its pace. Many of its staff feel alienated from management and its choices, while the bank has changed its organizational chart a number of times in recent years.
Finally, CEO Pavlos Mylonas does not seem to be focused on developing banking operations. Mylonas has given great weight to the digital transformation of the bank, something that is reflected in his public comments, leaving the rest on an automatic pilot that is not working.
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