The Government of Greece has announced the provision of over € 9 billion in credit offered through Greek banks, in conjunction with the Hellenic Development Bank in Greece. This capital is being made available in the form of credit guarantees. The support in this phase will be directed towards small and medium sized companies.
Athens, Greece: 6 September 2020
According to article published on 6 September 2020 by Kathimerini,
“More than 9 billion euros will have been channeled to Greek enterprises by the end of the year through the working capital supplied by commercial banks with the support of the Hellenic Development Bank.
After the € 3.9 billion of working capital issued through the two main funding tools – Entrepreneurship Fund II and the Guarantee Fund – an extra € 5.2 billion will have been issued by year-end. The bulk of that will come from the second phase of Guarantee Fund credit that Development Minister Adonis Georgiadis announced late last week: An additional € 1 billion of state collateral is being transferred to the Hellenic Development Bank, opening the way for new bank loans of € 3.5 billion.
The distribution balance in this new phase will be more in favor of small and medium-sized enterprises, with very small enterprises also securing a share. This was after the 50-50 split in the first phase between large companies and SMEs. Therefore, € 220 million will be directed toward credit for very small enterprises, which along with bank leveraging should lead to loans of € 500 million in total.”
Small and medium companies face significant challenges relating to Covid-19 as well as the wider economic competition and globalization.
We note that a key challenge in Greece is the high non-performing loan (NPL) volume. According to Fitch, Greek NPLs amounted to 41% of gross loans at the end of 2019. Given the loan moratoriums introduced due to the COVID-19 crisis, as well as the economic downturn, we assume that the credit rating of Greek firms will have deteriorated in turn.
As Fitch reports:
Before the outbreak of the pandemic, the Greek banking sector was progressing well with the asset-quality clean-up through a combination of sales of problem assets, write-offs and restructuring. In 2019, the stock of non-performing loans (NPLs) in the sector declined by 16%, although it still was a very high 41% of gross loans at end-2019. The banking sector was planning to reduce the NPL ratio to below 20% by end-2021, mainly driven by large securitisations of problem assets this year following the approval of the Hercules Asset Protection Scheme (APS). However, the economic fallout from the pandemic is going to delay most of these planned securitisations, in our view, and will likely result in an increase in new NPLs.
In response to the crisis, Greek banks have introduced moratoria on debt payments to individuals and businesses that were performing before the pandemic outbreak. The guidelines by the European Banking Authority on the treatment of non-borrower-specific moratoria in light of coronavirus-related measures should avoid triggering a forbearance classification or the treatment of such exposures as defaulted in the near term. The provision of state loan guarantees, interest loan subsidies and support to affected individuals and businesses by the Greek government will also mitigate near-term asset-quality deterioration. However, large credit losses could eventually materialise if the economic fallout from the current crisis is long lasting.
The current economic environment is deteriorating rapidly. The tourist season saw significantly lower arrivals than that of 2019. Together with other coronavirus impacts, we are anticipating a difficult autumn and winter.
As such, it remains to be seen what credit standards will be used to disburse the loans mentioned in this article, and what the absorption rate will be.
Navigator Consulting Group provides Investment Advisory and Strategic Management services for companies in Cyprus, Greece and internationally.
For further information, please contact:
Philip Ammerman
Managing Director
Sources:
Ekathimerini.com. 6 September 2020
Fitch. 15 May 2020
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