Άρθρο του Υφυπουργού Οικονομικών αρμόδιου για το Χρηματοπιστωτικό Σύστημα, κ. Ζαββού στο περιοδικό BusinessFile
“Reforming the Greek financial system: The challenges ahead”,
Article of George Zavvos, Deputy Minister of Finance in charge of the Financial System, in the magazine “BusinessFile”
Year 2020 will go down in history as an unprecedently challenging period for the entire world. The Covid-19 crisis hit the global health and economy in an unexpected way. In response, an extraordinary mobilization has taken place across the European Union, with EU institutions and Member States coordinating to alleviate the repercussions of the pandemic on health systems, the economy, and the financial sector.
Contrary to the 2008 crisis, this time the banking system is not the part of the problem but rather part of the solution. Despite the uniquely adverse conditions, the government of New Democracy managed to launch and maintain on track significant reforms for the Greek financial system.
The reduction of the stock of Non-Performing Loans (NPLs) has been a top priority for the Greek government since its coming into office. This was achieved through the speedy design, adoption and implementation of the “Hercules” Asset Protection Scheme. Following its approval by the European Commission in October 2019 and the adoption of the law by the Hellenic Parliament in December 2019, “Hercules” has reduced by almost 40% Greek NPLs within a year. Thus, it proved that it is a systemic solution for the banking system, which enhances the NPL secondary markets and reinforces market transparency. “Hercules” is a market-based solution, as funds for its operations are drawn from investors, and therefore does not impose any burden on Greek taxpayers. Within a year, three out of the four Greek systemic banks have participated in the scheme, while the fourth, according to its public announcements, is expected to apply in early 2021. Most importantly, “Hercules” demonstrated its resilience as it continued to operate successfully despite the acute pandemic crisis, thus reflecting the confidence of international investors in the prospects of the Greek economy.
“Hercules” has been welcomed by all European institutions. Very recently, the Chairman of the SSM publicly highlighted that, thanks to “Hercules”, a significant reduction in NPLs has been achieved, and the scheme should continue as planned, while urging banks to further accelerate the consolidation of their balance sheets.
As for the remaining “legacy” NPLs, the Government is in the process of designing the second phase of the scheme, “Hercules II”, in order to address them along with potential new Covid-related NPLs. The prolongation of the scheme will cover the period May 2021 to December 2022. By then it is expected that the stock of NPLs will have been reduced to a single-digit number and will be very close to the EU average. The entry into force of the new insolvency framework is another major reform, complementary to “Hercules” and the risk reduction measures. By addressing the issue of strategic defaulters and enhancing the enforcement of collateral, the new insolvency framework will further enhance the functioning of the secondary markets for NPLs. The latter will be further strengthened through the establishment of a Central Credit Register (CCR), a database that collects anonymized data on all existing loans, which will support risk reduction, enhance transparency and boost investor confidence.
Furthermore, the Government will digitalize the tools that allow the State to collect statistical data on the special liquidation process, the total amounts representing the business recoveries and distributions of the remaining funds, and to use the findings for the optimization of the respective framework.
Another ongoing reform bears on the role and operation of the Hellenic Financial Stability Fund, in particular regarding the steps that will lead to the gradual disinvestment of the State’s participation in the systemic banks. In addition, the Government is currently actively evaluating efficient market-based solutions to address on an investor-friendly basis the Deferred Tax Credit (DTC).
The digital transformation of the Greek financial sector is gaining considerable traction. The pandemic and the rapidly changing payment habits of consumers –the use of a credit card, a mobile phone or even a smartwatch for payments– intensify the digital transformation and act as a catalyst for many reforms. We are designing a framework for the digitalization of the financial sector through the creation of joint programs, so-called “utilities”, which will aim at reducing the administrative burden and adapting the business models of banks, always with the ultimate goal of providing optimal services to citizens. We are also designing an innovative framework of incentives for companies operating in the Greek market to issue and use green bonds, in order to encourage sustainable finance and trigger new investments.
The Greek government also pays particular attention to the reform of the Greek capital market. The adoption of the Corporate Governance law, with broad parliamentary support across political parties, introduced innovative rules for the operation, control and transparency of listed companies.
Its main purpose was to ensure that scandals like the Folli-Follie one, that have tarnished the reputation of our market, are avoided in the future, thereby restoring the credibility of the Greek capital market. Furthermore, early this year we will also move on with the strengthening of the supervisory mechanisms of the capital market. A committee of experts that we have set up composed of the main stakeholders in the capital market has made proposals for incentives aimed at rebranding the Greek capital market; the Ministry of Finance is currently evaluating them. Our strategy is the internationalization of the Greek capital market as a creditworthy institution for the protection of small investors, with incentives for attracting new investors and raising capital for our companies. We are aspiring to have an important regional role, particularly at a time of global change in European capital markets and stock exchanges.
The speedy reduction of NPLs leads to a robust and stable banking system that will enable banks to play their role as efficient transmission belts for the channeling of the Recovery and Resilience Facility (RRF) funds. These funds will promote significantly the transformation of the productive basis that is currently dispersed in a large number of SMEs, contributing to the recovery and growth of the Greek economy and increasing firms’ demand for loans.
Notwithstanding the above reforms, it is essential that the EU proceeds with the completion of the European Banking Union (EBU), as only this way can we overcome the current fragmentation. While the first pillar, the Single Supervisory Mechanism, is well functioning, we still have to streamline the Single Resolution Mechanism to enable it to address efficiently systemic banking crises. It is also essential that the EU proceeds rapidly with the adoption of the third pillar of the EBU, the European Deposit Insurance Scheme.
The Greek Government is a staunch supporter of and participates actively in the negotiations regarding the EBU and the Capital Markets Union (CMU), as both create powerful synergies in enhancing financial stability and the competitiveness of the European financial system.
The enhancement of the single banking market is essential in order to reverse the fragmentation which hinders the cross-border free flow of capital and the provision of banking services, thereby imposing disproportionate costs on consumers. A smoothly functioning European banking system is indispensable for the transmission of monetary policy and providing liquidity to the real economy, to small and medium-sized enterprises, to businesses and entrepreneurs.
After ten years of crisis, the Greek financial system is confidently moving forward by addressing efficiently the main sources of instability and stagnation. The Government’s determination is to continue and speed up its successful reforms that reduce NPLs, free up capital and make the banking sector the capital engine of the real economy, as well as strengthen the Greek capital market. Considering the aforementioned reforms and the measures that have been taken at national and European level in order to address the challenges of the pandemic, I believe we can look at the future with optimism. Especially regarding the banking system, the reforms we have already implemented and those we plan in the near future demonstrate our determination to render it stronger, more resilient, and ready to deal with the challenges of tomorrow, such as digitalization and green finance.
A well-functioning and competitive financial system is the prerequisite for achieving growth and ensuring stability and prosperity for the citizens, and we have put all our efforts to ensure this goal is attained.