The inability of commercial banks to channel unprecedented liquidity provided by the European Central Bank (ECB) into the real economy was underlined by Bank of Greece (BoG) governor, Yiannis Stournaras.
As he pointed out, with the exception of some large companies that actually have access to new lending, the liquidity that reaches small - medium sized enterprises and households is minimal. He added, in fact, that banks have been choosing the easy solution of placing liquidity in Greek government bonds and deposits with the central bank taking advantage of negative interest rates.
Speaking at an event organized by the Foundation for Economic and Industrial Research (IOBE) and the Konrad-Adenauer-Stiftung Foundation (KAS) in Greece & Cyprus, Stournaras stressed that, despite the unprecedented liquidity of domestic banks, a small part of it reaches the private sector.
“Despite the fact that their liquidity is unprecedented by Greek conditions - I estimate that the increase in liquidity is close to 40 billion euros -, however, a very, very small part of this liquidity has been channeled to the private sector of the economy. In large enterprises we have a fairly large credit expansion of 9% but in small and medium enterprises credit expansion is limited to only 1.9% while in households it is negative. In general,we are a little above zero for the private sector," stressed the central bank governor.
This unprecedented liquidity has been channeled "into Greek government bonds, into central bank deposits and there is a large reduction in interbank lending," he stressed.
"The question is how they can contribute more to credit growth in the productive sector of the economy," he said. Stournaras noted that the only way to achieve this is to radically address the problem of non-performing loans.
Essentially, the BoG governor said that banks are too reluctant to take risks and have moved to safe options, such as bonds and deposits with the central bank, as the large stock of non-performing loans absorbs all of their operating profitability. Under a lot of pressure to reduce NPLs, banks are avoiding issuing new loans to avoid the risk of fresh bad debt arising.
The governor noted that the forward-looking solution to the problem of bad debt requires two tools, one is the "Hercules" plan, which has been successfully implemented, and the second is the creation of an asset management company (Asset Management Company), a plan that the BoG has been working for a long time and which has been embraced by SSM, which wants a pan-European bad bank network in a plan that has been embraced by the European Commission.
"We have a very big opportunity now and I do not think we can stay out of such a pan-European network of asset management companies," Stournaras said.
For their part, banks argue that loans are given on the basis of specific banking criteria, acknowledging that a large proportion of businesses, especially small businesses, do not meet the criteria. However, they emphasize, this is not due to the strictness of the criteria, but to the fact that a very large number of companies have weak balance sheets and do not meet basic credit criteria. The situation has been made worse by the fact that Greece suffered a ten-year economic crisis that has pushed many companies close to bankruptcy.
As noted by Eurobank CEO Fokion Karavias, recent funding requests received by the lender include companies with negative equity, that are over-indebted, and already have non-performing loans. "So we finance, as we are obliged to, approximately 30,000 companies, with the aim of financing companies that will be sustainable the next day, that will produce and maintain jobs. We have a lot of very small companies and the average size of Greek companies should be increased in order to gain access to liquidity ", stressed Karavias.
Deputy Minister of Development and Investment, Giannis Tsakiris, referred to the problematic structure of Greece’s business. As he noted, out of the 830,000 companies operating in the country, 810,000 companies are very small companies that employ an average of 1.7 employees. That is, the vast majority of businesses concern the self-employed, who are unable to make large investments and obtain bank financing.
According to a sample survey by Grant Thornton, small businesses with a turnover of 200,000 to 5 million euros make up 78% of the total number of companies, with their sales accounting for 11% of total sales. Small and medium-sized enterprises (SMEs) with a turnover of 5 to 50 million euros account for 19% of total number of companies and make 37% of sales while large enterprises with a turnover of over 50 million euros constitute only 2% of the total number contributing, however, 63% of total business sales.
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