Piraeus Bank's capital plan is a game changer for Greek lenders

Piraeus Bank is due to present today an ambitious plan for a share capital hike aimed at drastically reducing problem loans, alongside the announcement of earnings for 2020.

The 2.5-billion-euro capital plan includes, among other actions, a share capital increase in cash, the details of which will be presented today, the issuance of a Tier 2 bond and the sale of its card clearing industry (POS) - a transaction that is at an advanced stage.

With these moves, the bank will raise valuable capital in order to dramatically accelerate the effort to reduce non-performing loans with new large securitizations, with the aim of achieving a single-digit non-performing loan ratio within 12 months from today.

However, the growth of Piraeus Bank has a broader dimension: its success will be a key event for domestic banks.

For many years, Piraeus Bank was considered the weak link in the banking system, due to the heavy legacy of NPL loans. Many analysts doubted whether it was possible for the bank to return to normality and there were many who feared a wider destabilization of the banking system due to Piraeus Bank’s weakness. Among other deals, Piraeus Bank has acquired Agricultural Bank, a lender that carried many problem loans. Piraeus Bank still has the highest stock of bad debt loans: 22.7 billion euros in non-performing credit exposures (Sept. '20) corresponding to an NPEs index of 47 percent.

With the completion of the securitizations Vega project (5 billion euros) and Phoenix project (1.9 billion euros) totaling about 7 billion euros, which are in progress under the Hercules project, NPLs will be reduced to 15.8 billion euros and the NPEs index will be just over 30 percent, much higher than Eurobank and NBG and Alpha Bank.

With the new ambitious plan that will be announced today, NPEs will drop to single-digits on a 12-month horizon, finally addressing the heavy legacy of the crisis that plagued the banking system over the past decade.

The capital increase will be the key to launch the immediate start of more securitizations through which the bank will be able to return to normality, putting an end to the concerns and uncertainty about the next day of the bank.

Return to normal

Having got rid of the weight of the CoCos, the bank's management, through the capital increase, will not only accelerate the planning to reduce non-performing loans but will also take a step to normality, aligning itself with the other systemic banks.

As reported by Business Daily, the bank's management has worked out a new mechanism through which the new large securitizations of non-performing loans that will be made under Hercules II will not lead to the activation of deferred tax credits (DTC). According to sources, the new plan that has been put together by the management of Piraeus Bank, in collaboration with specialized advisors, has been given the green light from both certified public accountants and the Single Supervisory Mechanism (SSM).

According to the plan, the capital boost will proceed rapidly, in accordance with the corporate and regulatory procedures. It is noted that the government has changed the HFSF law, allowing it to participate in the share capital hike, while sources indicate that there is strong interest from foreign investors.