Banks: The Price Of Ending The Epidemic
Banks are now in a very tough situation as a result of the expiration of the advantageous arrangements that the SSM settled upon during the epidemic.
Banks are getting ready for the next day as the epidemic is drawing to an end. The SSM is regaining advantageous arrangements, which will force banks to take activities that will cost 2% of their weighted assets.
Numerous clauses will no longer be in effect as a consequence of changes to Covid Guidance’s advantageous arrangements. The SSM has strengthened its regulations as of January 1, 2023, including:
(a) The entitlement to limited provisions was eliminated by IFRS9.
(b) Brings capital ratios back to a point or so above where they were before.
c) Banks must fully disclose any bond-related losses they have documented.
SSM’s “Orders”
The SSM essentially issues orders, although they are often “orders” for banks. According to the regulations, CET1 funds, which should be 9.5%–10%, should thus be 1.5%–2% higher.
The activities that financial institutions will take to implement the new rules are expected by the banks to cost at least EUR 2 billion (new issues, sale of assets, enhancement of organic profitability, etc.).
Competition For Investment Grade
In parallel, the banks are beginning a scramble to gain investment grade as soon as the Greek economy recovers. Credit institutions are rated three and four points worse than the Greek economy according to S&P.
To pass the test, the banks must persuade the businesses of ongoing organic profitability, which will also be able to shape their organic capital. They must also convince the businesses to raise their red loans to the level of the average European loan, despite the challenges in doing so.
Additionally, they will need to execute very convincing acts that alter their recorded data. Banks are also required to pay out dividends, therefore they are competing to have the best financial performance by the end of 2022.
The Future Of Npls And Enria’s Visit
The increase in interest rates is an ally of the banks, but there are concerns about the toxicity that might result from the creation of additional loans. Despite receiving the necessary permits from the SSM, the banks are not moving toward the “Hercules” mechanism because they still need to resolve the problems with the “Sunrise 3,” “Frontier 2,” and “Sollar” packages. Banks are unable to keep 1.5 billion euro worth of bad loans on the market permanently.
All of the aforementioned topics are anticipated to be covered by Andreas Enria during his visit to Greece. It is also important to note that the stress test exercise will begin for all banks at the end of January when the banks will formally get the data.
