The EU-Balkan Summit, October 17 -18 2013 Ilias Lekkos, Group … EU-Balkan Summit... ·...

Ilias Lekkos [email protected]

Dimitria Rotsika [email protected] Konstantina Margariti [email protected]

Piraeus Bank

Amerikis 4, 105 64, Athens, Greece Tel. +30 210 3288187, Fax. +30 21032 88605

[email protected] Bloomberg Page: {PBGR<GO>}

The EU-Balkan Summit, October 17th-18th 2013

Ilias Lekkos,

Group Chief Economist

Piraeus Bank Group

2

The cost of the crisis

The SEE Banking Sector after the Crisis: Managing the Transition to the new Paradigm

y = 0.0145x + 9.016

R2 = 0.99538.6

8.8

9.0

9.2

9.4

9.6

9.8

10.0

Q2/00

Q4/00

Q2/01

Q4/01

Q2/02

Q4/02

Q2/03

Q4/03

Q2/04

Q4/04

Q2/05

Q4/05

Q2/06

Q4/06

Q2/07

Q4/07

Q2/08

Q4/08

Q2/09

Q4/09

Q2/10

Q4/10

Q2/11

Q4/11

Q2/12

Q4/12

Q2/13

ln (

GD

P,

mn B

GN

)

ln (GDP, mn BGN) Linear (ln (GDP, mn BGN))

*trend is estimated between Q1/00 and Q4/08

0.3

y = 0.0157x + 9.8626

R2 = 0.99079.4

9.6

9.8

10.0

10.2

10.4

10.6

10.8

Q2/00

Q4/00

Q2/01

Q4/01

Q2/02

Q4/02

Q2/03

Q4/03

Q2/04

Q4/04

Q2/05

Q4/05

Q2/06

Q4/06

Q2/07

Q4/07

Q2/08

Q4/08

Q2/09

Q4/09

Q2/10

Q4/10

Q2/11

Q4/11

Q2/12

Q4/12

Q2/13

ln (

GD

P,

mn R

ON

)

ln (GDP, mn RON) Linear (ln (GDP, mn RON))

*trend is estimated between Q1/00 and Q4/08

0.3

Ilias Lekkos

Bulgaria Romania

GDP Trend

• After the global economic financial crisis, growth in SEE has stalled, failing to return to pre-crisis levels.

Source: Piraeus Bank Research, BIS, Eurostat, National Sources, IMF

3

Unemployment



Ilias Lekkos

Bulgaria Romania

Unemployment Rate

0

5

10

15

20

25

Jan-0

0

Jul-00

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

%

Unemployment Rate Average (2000-08)

5

5.5

6

6.5

7

7.5

8

8.5

9

Jan-0

0

Jul-00

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Jan-0

5

Jul-05

Jan-0

6

Jul-06

Jan-0

7

Jul-07

Jan-0

8

Jul-08

Jan-0

9

Jul-09

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Jan-1

2

Jul-12

Jan-1

3

Jul-13

%

Unemployment Rate Average (2000-08)

• Keeping unemployment at unacceptably (both economically and socially) high levels

4

Credit & Debt (levels)


• The story of the SEE region has been one, which started with very low initial levels of debt.

Ilias Lekkos

Credit External Debt

0

10

20

30

40

50

60

70

80

Jan-0

6

Aug-0

6

Mar-

07

Oct-

07

May-0

8

Dec-0

8

Jul-09

Feb-1

0

Sep-1

0

Apr-

11

Nov-1

1

Jun-1

2

Jan-1

3

Aug-1

3

% GDP

Bulgaria Romania

0

10

20

30

40

50

60

70

80

90

100

Jan-0

6

Jun-0

6

Nov-0

6

Apr-

07

Sep-0

7

Feb-0

8

Jul-08

Dec-0

8

May-0

9

Oct-

09

Mar-

10

Aug-1

0

Jan-1

1

Jun-1

1

Nov-1

1

Apr-

12

Sep-1

2

Feb-1

3

Jul-13

% GDP

Bulgaria Romania


5

Credit & Debt (growth)


• Credit and external debt started converging on EA levels, growing at break-neck speeds.

Ilias Lekkos

Credit External Debt

-10

0

10

20

30

40

50

60

Jan-0

6

Jun-0

6

Nov-0

6

Apr-

07

Sep-0

7

Feb-0

8

Jul-08

Dec-0

8

May-0

9

Oct-

09

Mar-

10

Aug-1

0

Jan-1

1

Jun-1

1

Nov-1

1

Apr-

12

Sep-1

2

Feb-1

3

Jul-13

% YoY

Bulgaria Romania

-10

0

10

20

30

40

50

60

70

80

Jan-0

6

Aug-0

6

Mar-

07

Oct-

07

May-0

8

Dec-0

8

Jul-09

Feb-1

0

Sep-1

0

Apr-

11

Nov-1

1

Jun-1

2

Jan-1

3

Aug-1

3

% YoY

Bulgaria Romania


6

Foreign Exchange Risk


• Inadvertently, this process led to excesses and under-pricing of risks, especially in FX lending.

Ilias Lekkos

Loans in FX as a % of GDP Growth of Loans in FX

0

5

10

15

20

25

30

35

40

45

50

Jan-0

6

Aug-0

6

Mar-

07

Oct-

07

May-0

8

Dec-0

8

Jul-09

Feb-1

0

Sep-1

0

Apr-

11

Nov-1

1

Jun-1

2

Jan-1

3

Aug-1

3

% GDP

Bulgaria Romania

-20

0

20

40

60

80

100

Jan-0

6

Aug-0

6

Mar-

07

Oct-

07

May-0

8

Dec-0

8

Jul-09

Feb-1

0

Sep-1

0

Apr-

11

Nov-1

1

Jun-1

2

Jan-1

3

Aug-1

3

% YoY

Bulgaria Romania


7

Asset Quality


• Hence, when these economies started to slow-down, the true extent of credit risk manifested itself in the form of non-performing loans.

Ilias Lekkos

Non-Performing Loans to Total Loans Growth Rate of Non-Performing Loans

0

5

10

15

20

25

Oct-

09

De

c-0

9

Fe

b-1

0

Ap

r-1

0

Ju

n-1

0

Au

g-1

0

Oct-

10

De

c-1

0

Fe

b-1

1

Ap

r-1

1

Ju

n-1

1

Au

g-1

1

Oct-

11

De

c-1

1

Fe

b-1

2

Ap

r-1

2

Ju

n-1

2

Au

g-1

2

Oct-

12

De

c-1

2

Fe

b-1

3

Ap

r-1

3

Ju

n-1

3

Au

g-1

3

% total loans

Bulgaria Romania

-20

0

20

40

60

80

100

120

Oct-

10

Dec-1

0

Feb-1

1

Apr-

11

Jun-1

1

Aug-1

1

Oct-

11

Dec-1

1

Feb-1

2

Apr-

12

Jun-1

2

Aug-1

2

Oct-

12

Dec-1

2

Feb-1

3

Apr-

13

Jun-1

3

Aug-1

3

% YoY

Bulgaria Romania


8

Asset Quality

The SEE Banking Sector after the Crisis: Managing the Transition to the new Paradigm Ilias Lekkos

Profitability Capital Adequacy

-10

-5

0

5

10

15

20

25

ROE ROA ROE ROA

Bulgaria Romania

%

2009 2009 2010 2011 2012

13

14

14

15

15

16

16

17

17

18

18

2008 2009 2010 2011 2012

%

Bulgaria Romania

• Despite the spike in problem loans, banks in the region remain well capitalized, although profitability has declined.


9

In Summary


• Starting from depressed levels, economies in the SEE region begun a rapid process of economic growth and financial growth

• As incomes started to rise, economic activity shifted towards domestic demand, especially consumption and real-estate investment

• Low-cost foreign capital and funding led to rapid credit growth, especially in foreign currencies

• This process led to the creation of major macro-imbalances that manifested themselves in the form of widening Current Account Deficits and overheating economies

10

Lessons Learned


• Banks placed too much emphasis on levels (low financial penetration) and ignored growth rates • Banks underestimated the credit and FX risks • Banks underestimated risk-adjusted returns on capital and underpriced liquidity provided to SEE subsidiaries • Banks failed to anticipate the imposition of regulatory restrictions by home and host regulators on their ability to internally optimize the allocation of capital and liquidity

11

Banking in SEE: the New Paradigm (I)


In response to the new operational and regulatory environment, banks in the SEE region will have to recalibrate their strategy. They should: • move to a more ring-fenced business model. This will be viewed favourably by both home and host regulators • place more emphasis on local retail deposits as a source of funding • upgrade their risk-management and lending criteria • apply the appropriate transfer-pricing rates and adjust ROE for risk • focus on market segments & countries with a significant foot-print

12

Banking in SEE: the New Paradigm (II)


In addition to these major strategic issues, banks should also: • rationalize their existing branch networks • address the existing NPL overhang • concentrate on specific market sectors and customer segments • facilitate and act as intermediaries for the adsorption of EU funds:

• Providing project evaluation and selection

• Assessing the “bankability” of the projects

• Contributing to the funding of the co-financed part of the projects

• Lending to SMEs i.e. via JEREMIE

13

Disclaimer: This note constitute an investment advertisement, is intended solely for information purposes and it cannot in any way be considered investment advice, offer or recommendation to enter into any transaction. The information included in this note may not be construed as suitable investment for the holder, nor may it be considered as an instrument to accomplish specific investment goals or relevant financial needs of the holder and may neither be reckoned as a substitute to relevant contractual agreements between the Bank and the holder. Before entering into any transaction each individual investor should evaluate the information contained in this note and not base his/her decision solely on the information provided. This note cannot be considered investment research and consequently it was not compiled by Piraeus Bank according to the requirements of the law that are intended to ensure independence in the sector of investment research. Information comprised in this note is based on publically available sources that are considered to be reliable. Piraeus Bank cannot be held accountable for the accuracy or completeness of the information contained in this note. Views and estimates brought forward in this note represent domestic and international market trends on the date indicated in the note and they are subject to alteration without previous warning. Piraeus Bank may also include in this note investment research done by third parties. This information is not modified in any way, consequently the Bank cannot be held accountable for the content. The Piraeus Bank Group is and organization with a considerable domestic and international presence, and provides a great variety of investment services. In cases where conflicts of interest issues should arise while Piraeus Bank or the rest of the companies of the group provide investment services in relation to the information provided in this note, Piraeus Bank and the companies of the Group should be underlined that (the list is not exhaustive): a) No restrictions apply in dealing for own account, or with regards to trading in relation to portfolios managed by Piraeus Bank or companies of its group before the publication of this note, or with regards to trading before an initial public offer. b) It is possible that investment or additional services are provided to the issuers included in this note against a fee. c) It is possible that Bank or any of its subsidiaries participate in the share capital of any of the issuers included in this note or may attract other interests financial or not from them. d) The Bank or any of its subsidiaries may act a market maker or an underwriter for any of the issuers included in the note. e) Piraeus Bank may have issued similar notes with different or incompatible content with the content of this note. It should be explicitly noted that: a) Figures refer to past performances and past performances do not constitute a safe indication for future performances. b) Figures constitute simulation of past performances and they are not a safe indication of future performances. c) Any projections or other estimates are not safe indications for future performances. d) Taxation treatment of information provided in this note may differ according to the rules that govern each individual investor. Therefore the holder should seek independent advice in relation to taxation rules that may affect him/her. e) Piraeus Bank is not under any obligation to keep data and information provided herein updated.

The EU-Balkan Summit, October 17 -18 2013 Ilias Lekkos, Group … EU-Balkan Summit... ·...

Documents

Transcript of The EU-Balkan Summit, October 17 -18 2013 Ilias Lekkos, Group … EU-Balkan Summit... ·...