31st Oct, 2015, Stress Tests' results of Greek Banks are considered better than expected

·         The European Central Bank announced that the Greek systemic banks will need 4.391 bios euros of additional capital according to basic scenario, 14.4 bios euros according to worst case scenario. This exercise was based on end-June’15 financials. More specifically:

o   Alpha Bank, 263 mios for basic scenario, 2.743 bios for worst case

o   Eurobank, 339 mios for basic scenario, 2.122 bios for worst case

o   National Bank: 1.576 bios for basic scenario, 4.6 bios for worst case

o   Piraeus Bank: 2.213 bios for basic scenario, 4.933 bios for worst case 

·         According to Greece’s Foundation of Economic & Industrial Research (IOBE), the local Economic Climate Index continued its increasing trend since July; it closed at 86.5 in October vs. 83.1 in September and 75.2 in August. On the other hand, Eurozone’s index slightly increased to 105.9 in October vs. 105.6 in August. 

·         Greece's Economic Climate Indices increased across all industrial sectors i.e. Manufacturing’s index improved to -19.6 in October from -23.3 in September but it is still lower compared to October 2014 (-0.6). This was due to an improvement of expectations as regards the following 3 month period (Oct: +11.7, Sep. +14.3 and Aug: -10.5). In addition, expectations concerning sales improved for a 2^nd month in a row (Oct.’15: 1.2, Sep’15: +2.9 and Aug: -33.1).
 

·         Greece’s current account closed at surplus for a third month in a row. More specifically, August’s surplus was recorded at 2.1 bios vs. 1.9 bios in August’s 2014. The current Account’s improvement is associated to the remarkable performance of Greek tourism which showed an increase of 8.5% as regards its balance of payment during Jan-Aug period. More specifically inflows increased by +7.5% while outflows decreased by -1.5%.

·         The number of arrivals of tourists in Greece, increased by +10.6% (annualised) during the period Jan-Aug, which is lower compared to the same period in 2014 (+22.1%). In August the number of tourists increased by +2.8% only, which is lower vs. August 2014 which showed an increase of 25.0%.

·         Arrivals of US tourists in Greece increased by +35.7% during the period Jan-Aug (+24.8% during the same period of 2014), while German tourists increased by 22.5% (+4.5% in same period of ‘14), and arrivals of British tourists increased by +24.9% (+4.5% in same period of ’14). On the other hand, arrivals of Russian tourists decreased by -62.2% during Jan-Aug period 2015 (remained stable during the same period of 2014). 

·         Greece’s inflows from shipping decreased by +2.3% during the period Jan-Aug; there was a drop of 46.7% in August due to the  implementation of capital controls.  

·         Expectations as regards construction slightly improved to -49.4 in Oct’15 vs. -52.8 in Sep’15. However, this was due to an improvement in Public Sector Construction only, which showed a remarkable increase to 80.5 in Oct’15 vs 58.5 in Sep’15 and 36.2 in Aug’15. 

·         Turkey holds parliamentary elections this Sunday Nov 1^st, which is the second in five months, with the governing AK Party hoping to win back its parliamentary majority. Deterioration of local economy, status of Turkish Democracy, regional geopolitics and security are among the key issues of concern for Turkish electorate. 

·         Refugees’ tragedy continues in Aegean Sea. More than 100 children have drowned in the Aegean over the last two months. Tsipras accused some European officials of not caring about these deaths and ‘crying crocodile tears’ over them.
 

Risk assessment. Turkey holds parliamentary elections this Sunday, November 1^st, the second elections in five months with ruling AK Party hoping to win parliamentary majority. The geopolitical developments in Syria combined with escalating attacks in Turkey’s interior by Kurdish forces and ISIS, have increased anxiety among Turkish citizens and may impact the final elections’ outcome. Turkey has gradually become ‘a nervous country’ and this represents a major threat for regional stability.

The developments in Turkey, enhances Greece's geopolitical role in the region of SE Europe and Middle East and this could facilitate the ongoing discussions as regards debt relief and investments. However, Greece has to increase its efforts in order to fulfil its obligations to creditors and enhance competitiveness and internationalisation of its economy. 

As it was predicted in previous commentaries, the total capital needs of Greek Banks are significantly lower than the amount which is included in the 3^rd MoU (25 bios). In addition, this exercise was performed based on end-June’15 results and before the agreement of July 13th, when local political uncertainty was skyrocketing.

It appears that both Eurobank and Alpha Bank’s positions are better, compared to the ones of National Bank and Piraeus Bank. National Bank shows comparatively higher capital needs but the biggest part could be covered by the sale of its Turkish subsidiary - Finansbank. It appears that Piraeus Bank shows comparatively the highest capital needs and will need more work to raise capital.

The task of the first three banks (Eurobank, Alpha & National Bank of Greece) to attract capital from markets and maintain management seems feasible. However, Piraeus Bank will need more effort to attract foreign capital and this seems highly unlikely at this stage. However, there will be no issue as the additional capital will be provided by state funds, within 3rd MoU context.   

In addition, the Bank of Greece performed stress test on Attica Bank, a small, not systemic bank, which is owned mainly by the Pension Fund of Engineers (TSMEDE). It appears that Attica Bank has significant capital needs compared to its size (857 mios for basic scenario and 1.021 bios for worst case). It is highly unlikely that Attica Bank will raise capital and most probably will be acquired by one of the four systemic banks, with the support of state funds.

All Banks will need to submit by November 6th, a specific strategic plan which will include sources of capital injection. 

In general, the results of stress test are better than expected. Eurobank showed a remarkable improvement as it appears to maintain the best position among the four systemic banks. The leadership Karamouzis-Karavias proved to be successful in its strategy to turnaround the bank's position.

Overall, considering that the local economy shows better performance in 2015 compared to initial estimates, shows that Greek Banks maintain significant value to investors and could be reactivated soon in order to start financing the local real economy again.

However, there are a lot of pending items starting with the recapitalisation bill which needs to be ratified by local Parliament by tomorrow. In addition, Greece needs to proceed on the  implementation of the structural reforms which are included in the 3^rd MoU, which will improve the overall investments' sentiment and facilitate the attraction of private sector's investment funds.

Last, but not least, Greece’s government needs to gradually change the mix of policies from increase of revenues (through increase of taxation) to decrease of expenses. This will allow local citizens and enterprises to breath and facilitate the implementation of structural reforms

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10th October, 2015, Geopolitics gradually gain ground in Greece’s daily agenda vs. economy

·         Geopolitical tensions escalate in Middle East – Turkey region. Two explosions at a peace rally in the Turkish capital Ankara have killed at least 97 people and injured 186, according to officials. The blasts took place near the city's central train station as people gathered for a march organized by leftist groups. The attack is the deadliest of its kind in modern Turkish history and it threatens the local general elections of November 1st.

·         Greece’s Prime Minister Tsipras accompanied by Defence Minister Kammenos attended the final phase of military exercise ‘Parmenion’. He stated that Greece is not at war, however is in the middle of a destabilisation triangle referring to Ukraine, Libya and Syria.

·         ECB’s Draghi stated in an interview in Kathimerini of Sunday that he has raised concerns regarding Greece’s debt sustainability and there should be elements of lighting the debt burden. He emphasized the need that the Greek Government will implement structural reforms in order to return to growth trajectory.

·         Eurogroups’s Dijsselbloem stated that Greece’s debt restructuring is feasible if Greece honours its commitments. In addition, he stated that there is ground for an agreement according to which annual cost of servicing debt won’t surpass the level of 15% of GDP.

·         New Democracy’s four leadership challengers, Meimarakis, Mitsotakis, Georgiadis and Gigikostas started their campaign. The centre right party’s elections will take place on 22^nd November.

·         Licences of new cars increased by +7.1% in September, compared to September 2014. During Jan-Sep period, licences of new cars increased by +8.1% compared to the same period of 2014.

·         Industrial output increased by +4.5% in August compared to the same month last year. This increase occurred after three consecutive months of falling industrial production. At the same time, manufacturing production increased by +4.2%, electricity production by +9% while mining output decreased by -6.1%.

·         According to Greece’s Ministry of Agriculture, exports of agricultural products increased by +15.7% during the Jan-Jul period (annualised) vs. a decrease of -9.5% during the same period in 2014. Overall the contribution of agricultural products to total country’s exports increased to 30.6% from 28.8% in 2014.

·         It appears that a Chinese bank is included among the four banks which are interested in Finansbank (Turkish subsidiary of National Bank of Greece). As a reminder, NBG’s leadership has confirmed that is planning to sell 40% of Finansbank’s stake. However, the final decision will be based on NBG’s total capital needs which will be announced after the completion of stress tests.

 

·         According to the Bank of Greece prices of offices have dropped up by -30.4% while prices of shops by -28.3% during Greece’s debt crisis. At the same time, rental prices for offices dropped by -29.3% while shops’ ones dropped by -33.9%.  

·         The former Governor of Bank of Greece Provopoulos, took over the position of the Chairman of the Bulgarian Postbank, which is a subsidiary of Greece’s Eurobank.

·         Albania’s GDP increase by 2.5% during the 2^nd quarter of 2015. Growth in local construction industry (+24.5%), manufacturing (+6.3%) mainly contributed to this increase. According to IMF, Albania’s GDP will increase by 2.7% in 2015 and by 3.4% in 2016.  
 

Risk assessment. It appears that geopolitics gradually gain ground in Greece’s daily agenda. The appearance of Tsipras wearing a military jacket in a military exercise is completely new to local public opinion. This is because local leftish political parties traditionally have been pursuing an anti-military, anti-war agenda. However, geopolitical tensions in Syria have started impacting Turkey.

Although Greece’s geopolitical role has been significantly increased during the last couple of months, due to Syrian crisis, a potential destabilisation of Turkey due to geopolitical crisis' contagion from Syrian crisis represents a major threat for Greece’s security.

Needless to say that Greece’s eastern borders, at the same time represent EU’s south east borders and a significant component of EU's energy corridor to Middle East energy resources.

The fact that at the moment all major EU’s important posts related to foreign, security, defence, management of crisis and military are held by Italians, Greek and Cypriot citizens, show the importance of EU's south eastern group of countries to overall EU's security. More specifically:

Federica Mogherini is an Italian politician and is serving as High Representative of the European Union for Foreign Affairs and Security Policy.

Dimitris Avramopoulos is a Greek politician and is serving as EU Commissioner for Migration, Home Affairs and Citizenship.

Christos Stylianides is a Cypriot politician and is serving as EU Commissioner for Humanitarian Aid and Crisis Management.

General Michail Kostarakos is a Greek Army officer who served as the Chief of the Hellenic National Defense General Staff in 2011–2015. He is the appointed Chairman of the European Union Military Committee, taking office from 6 November 2015.

Last but not least, although the ongoing geopolitical crisis represents a source of risk as regards Greece’s security, it could be proved as a historic opportunity to emerge as a regional safe haven and business, political and cultural hub for the region of Middle East, Turkey and Northern Africa.

As a reminder, Greece represents the only country in the region which is member of both Eurozone and NATO.