Banks to return to normal with HFSF bill

The Hellenic Financial Stability Fund (HFSF) is being transformed from a supervisory body into one that is responsible for allocating the state’s holdings in banks, according to a Ministry of Finance put to public consultation on Friday. The fund’s monitoring powers are being drastically reduced and its internal structure is being reorganised, in order to pave the way for its disinvestment from systemic banks by 2025.

Sources familiar with the process told Business Daily that the new framework’s regulations send a strong message to investors regarding the return of Greek credit institutions to a “new normality”. The state’s increased say in bank decisions, through the HFSF, were a significant obstacle for the entry of investors- mainly from abroad- in the share capital of lenders.

Senior banking sources describe the new framework as being “demanding but fair”, expressing their satisfaction with the reform of the operating framework governing the HFSF and banks.

In regard to the changes brought about by the new bill, the focus is mainly on the restriction of the veto right that the HFSF holds today on all decisions taken by banks, regardless of the percentage it holds in their share capital.

Some of the rights that the fund loses with the new law, are:

• The right to request the convening of the General Assembly of shareholders.
• The right of veto on any decision that the credit institution’s Board of Directors makes, if the decision in question may endanger the interests of depositors or seriously affect liquidity or solvency or the as a whole the orderly operation of the credit institution.
• The right to approve the CFO.
• The right to evaluate the corporate governance framework of credit institutions and to propose improvement measures.
• The new framework constitutes an important change, as after 12 years, salaries, benefits and bonuses of the executives are being liberalized.

Currently, these earnings “cannot exceed the total salary of the Governor of the Bank of Greece, while all kind of additional earnings (bonuses)...are abolished for the period of time that the credit institution participates in the capital increase programme”.

The lifting of restrictions applies to institutions that have managed to reduce NPLs below 10%, as a percentage of total loans. This condition is now met by Eurobank and National Bank, while within the year Alpha Bank and Piraeus Bank will follow. This liberalization does not only affect the highest administrative ranks, but is also expected to upgrade the total earnings of middle management.

HFSF governance

A more important change in the operating structure of the fund is the merger of the General Council with the Executive Committee into a single Board of Directors. The Board will consist of nine members (six executive and three non- executive). Three of these members will be appointed by the Greek government and six by official sector creditors, which means that the HFSF is still the last bastion of lenders in our country- and will remain so for many more years to come, despite the fact that Greece will exit the enhanced surveillance program in a few months.