By David Brierley and Saad Sarfraz
This article is the first in SNL FINANCIAL’S series of Data Dispatches and features analyzing the European Central Bank asset quality review and stress test.
It was a symbolic journey.
The future head of the European Commission, Jean-Claude Juncker, chose Greece as his first official journey. Speaking Aug. 4 in Athens, Juncker praised Greek reforms but demanded further savings, remarking: “I have never said that austerity is over.”
That leaves Greece’s banks with unfinished business despite the reform and rescue program undertaken with the EC/ECB/IMF troika. High on the list of challenges, SNL FINANCIAL data shows, are nonperforming loans, the recovery of which is questionable at best and which could require billions more euros of bank capital.
The budget and TRADE deficits of Greece have fallen continuously since 2009 but remain high; unit labor costs have also fallen but still were higher in 2012 than 2000; and a savage recession has cost roughly a quarter of output. The first-quarter debt-to-GDP ratio reached 174%, according to Eurostat.
Nevertheless, a weak recovery is underway and the budget deficit is improving. Reinhard Cluse, an economist at UBS, told SNL FINANCIAL that the EU was committed to helping the nation deal with its debt: “We expect to see positive growth in 2014 and, for the first time, a primary surplus. The other European nations will have to respond, and we anticipate the further extension of debt maturities and postponement of interest payments.”
An IMF spokesman said at a July 24 press briefing in Washington that with Greece reaching a primary surplus, the issue of Greek debt and its sustainability would be discussed from September.
Any optimism requires qualification. For many Greeks, the current experience is truly miserable and scarcely improving. Bank of America Merrill Lynch economist Athanasios Vamvakidis told SNL that with deflation of about 2.0% expected in 2014, “nominal GDP growth is negative. … Much depends on what the ECB is going to do to address deflation risks.”
Concerns are also growing about the ECB asset quality review and stress test. Vamvakidis said the stress test “is a risk but Greece has been through two stress tests based on BlackRock reports, quite severe stress tests.” He said the ECB could be very cautious ahead of assuming eurozone bank regulatory duties and want to impose extreme scenarios in the test, but that this would create “other negative surprises” in the eurozone.
“We would not single out Greek banks. It is not in our base case but the banks might need to increase their capital down the road given the increase in nonperforming loans,” Vamvakidis said.
Cluse was also sanguine, given that the Hellenic Financial Stability Fund still has €11 billion of troika FUNDS to disburse after the banks’ recapitalization.
However, reports from Greece indicate widespread and growing concern, notably that the test is ostensibly to be based on 2013 figures and not include the four leading banks’ restructuring plans. Such an approach might uncover significant capital holes, it is feared.
This is not without justification, as SNL figures demonstrate. At year-end 2013, Alpha Bank AE, Eurobank Ergasias SA, Piraeus Bank SA and National Bank of Greece SA showed impaired loans gross of reserves that comfortably exceeded their core Tier 1 capital.
Under normal circumstances, the first-quarter 2014 capital figures, which are slightly lower than at year-end and reflect first-time reporting under Basel III, would be considered adequate. Yet they proved insufficient. In March, the Bank of Greece determined that the quartet and two smaller peers needed €6.38 billion in additional capital.
Investor excitement over the recovery in the European periphery amid falling Greek sovereign bond yields saw the big four raise equity capital totaling over €8 billion — Alpha Bank €1.2 billion, Eurobank €2.86 billion, Piraeus Bank €1.8 billion and National Bank of Greece €2.5 billion.
The Greek bank investment case centers on their ability to benefit from a bank oligopoly, on falling FUNDING costs and on improving efficiency and asset quality as the economic cycle turns. Yet there are indications that MARKETS do not quite believe this optimistic scenario. Concerns about the ECB stress test saw Greek bank share prices fall sharply Aug. 6. At one stage, Piraeus had fallen some 10%.
The fact is, as SNL data shows, there remains a major NPL problem. The past will not simply fade away; someone will have to pay and the banks are clearly in the front line, given the indebted sovereign.
Nikos Lianeris, a bank analyst at Alpha Finance, told SNL that Greece faces “pressure from the IMF and the troika to handle NPLs in a more aggressive way. The Athens government is pressing the ECB to take a more lax approach.”
The ECB and IMF want the banking system free to FUND growth. Lianeris did not see the much-mooted alternative of banks trading out their NPLs as viable.
Reporting Aug. 4 from Athens, Handelsblatt wrote that negotiations over loan books have been ongoing for weeks between banks, government and business associations. No credible concept has emerged from a host of ideas, including an NPL haircut. This prospect, however, seemingly contributes to many not servicing their loans even though they could do so.
At year-end 2013, the four Greek banks had roughly €350 billion in assets, of which €82.66 billion were impaired, with €29.41 billion covered by reserves. NPL ratios — gross impaired loans as a percentage of gross loans to customers — ranged from 25% for Piraeus to 48% for Alpha Bank.
Before the capital increases, NPLs comfortably exceeded capital and reserves. The capital needed to lift reserves to 60% of impaired loans, a figure broadly seen as acceptable by European banks, would have amounted to some €20 billion at 2013-end. On this pro forma basis, there would remain a €12 billion hole in the Greek banking system post-rights issues.
This calculation excludes accounting issues, retained profits, asset sales and other efforts to strengthen capital and asset quality. It does indicate, however, the potential scale of the problem. It might be larger under severe stress test conditions and if asset quality has fallen further since the last BlackRock survey.
“Who knows?” Lianeris asked, pointing out the difficulty of valuing loans when there is no MARKET for the underlying collateral, not even for small residential properties in Greece.
The IMF suggested in June that there might be a €6 billion hole, but Poul Thomsen, IMF mission chief for Greece, admitted June 10 that NPL recovery is “the key issue.”
Credit quality continues to decline though the rate of NPL creation is slowing, at least at Piraeus. Arguably the strongest of the four, it reported an NPL ratio of 37.9% at the end of the first quarter, with a 51% coverage ratio. It has some €26.6 billion of business and retail NPLs in its recovery banking unit, effectively its bad bank. It talks of “laborious work” here.
Given that such a large percentage of loans are affected, it is hard to see recovery procedures not impinging on future creditworthiness and lending. The banks continue to deleverage in 2014, according to ECB figures. It is clear from Handelsblatt that the willingness of Greek business to clear past debts is not growing, hitting new lending.
Debt generally is the issue and growth the answer to ensure the sustainability of both sovereign and Greek bank debt.
This emphasizes the risk presented by deflation. One solution might be to create a bad bank as in Ireland and Spain — a route repeatedly rejected in Greece, Lianeris said. The ECB and IMF might force a rethink.
Politics are a critical challenge. Vamvakidis said stability in Athens had been critical to the recovery and to the ability of the country to meet troika demands. “The No. 1 risk is political,” he said, pointing out that the government has just 152 votes in a 300-seat parliament and that 180 votes are needed to elect a new president in 2015.
Further reforms will be tough to sell politically. Vamvakidis thought that the timetable would be less tight because many key reforms — to the labor MARKET , pensions and tax, for example — had been delayed. Thus he expected debt discussions only to take place after the troika program has been completed. Others such as Cluse expected an earlier solution.
Brussels might bolster the current government by reining in the role of the much-criticized troika, according to a Guardian report Aug. 4. It suggested that a lighter-touch “reform for debt relief” scheme might ease public frustration, in turn wounding the far-left Syriza, which promises to rip up the bailout deal.
This might eliminate controversy around the troika and obtain renewed Greek commitment for reform. Certainly, the hope will be that further external FINANCIAL aid will not be required and that Greece itself will enjoy the freedom to implement the required measures. Yet the state of Greek banks’ balance sheets means that the ECB could demand much more capital — and some might well have to come from outside Greece.
U.S. inauguration turns poet Amanda Gorman into best seller
WASHINGTON (Thomson Reuters Foundation) – The president’s poet woke up a superstar on Thursday, after a powerful reading at the U.S. inauguration catapulted 22-year-old Amanda Gorman to the top of Amazon’s best-seller list.
Hours after Gorman’s electric performance at the swearing-in of President Joe Biden and Vice President Kamala Harris, her two books – neither out yet – topped Amazon.com’s sales list.
“I AM ON THE FLOOR MY BOOKS ARE #1 & #2 ON AMAZON AFTER 1 DAY!” Gorman, a Los Angeles resident, wrote on Twitter.
Gorman’s debut poetry collection ‘The Hill We Climb’ won top spot in the online retail giant’s sale charts, closely followed by her upcoming ‘Change Sings: A Children’s Anthem’.
While poetry’s popularity is on the up, it remains a niche market and the overnight adulation clearly caught Gorman short.
“Thank you so much to everyone for supporting me and my words. As Yeats put it: ‘For words alone are certain good: Sing, then’.”
Gorman, the youngest poet in U.S. history to mark the transition of presidential power, offered a hopeful vision for a deeply divided country in Wednesday’s rendition.
“Being American is more than a pride we inherit. It’s the past we step into and how we repair it,” Gorman said on the steps of the U.S. Capitol two weeks after a mob laid siege and following a year of global protests for racial justice.
“We will not march back to what was. We move to what shall be, a country that is bruised, but whole. Benevolent, but bold. Fierce and free.”
The performance stirred instant acclaim, with praise from across the country and political spectrum, from the Republican-backing Lincoln Project to former President Barack Obama.
“Wasn’t @TheAmandaGorman’s poem just stunning? She’s promised to run for president in 2036 and I for one can’t wait,” tweeted former presidential candidate Hillary Clinton.
A graduate of Harvard University, Gorman says she overcame a speech impediment in her youth and became the first U.S. National Youth Poet Laureate in 2017.
She has now joined the ranks of august inaugural poets such as Robert Frost and Maya Angelou.
Her social media reach boomed, with her tens of thousands of followers ballooning into a Twitter fan base of a million-plus.
“I have never been prouder to see another young woman rise! Brava Brava, @TheAmandaGorman! Maya Angelou is cheering—and so am I,” tweeted TV host Oprah Winfrey.
Gorman’s books are both due out in September.
Third on Amazon’s best selling list was another picture book linked to politics and projecting hope: ‘Ambitious Girl’ by Vice-President Kamala Harris’ niece, Meena Harris.
(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Lyndsay Griffiths. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
Why brands harnessing the power of digital are winning in this evolving business landscape
By Justin Pike, Founder and Chairman, MYPINPAD
Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.
As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.
As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?
Digital is an essential survival tool, and even more so in a COVID world
No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.
In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.
Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.
The challenges that rapid digital transformation brings to businesses
Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.
Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.
The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.
As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.
But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.
A digital world post-COVID
Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.
There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.
Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.
Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.
Brexit responsible for food supply problems in Northern Ireland, Ireland says
LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.
British ministers have sought to play down the disruption of Brexit in recent days.
“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.
The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.
(Reporting by Guy Faulconbridge; Editing by Tom Hogue)
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