Greek bankers see continued deposit outflow

AP News
Posted: Jun 13, 2012 4:20 PM
Greek bankers see continued deposit outflow

Greek banking officials say that depositors unnerved by political instability and talk of a potential exit from the euro are continuing to pull out their savings from local lenders, but not at a pace that would destabilize the battered banking sector.

Outflows spiked just after the inconclusive May 6 election, and have picked up in recent days ahead of Sunday's new vote, one official said Wednesday.

He said the result so far is "not destabilizing," although much will hinge on the election's result. The vote is expected to be a close race between the pro-bailout conservatives and a radical left party vowing to scrap Greece's commitments to rescue loan creditors for further austerity and economic reforms.

These pledges secured Athens two vital bailouts from its European partners and the International Monetary Fund, who have made it clear that the rescue loans keeping Greece solvent would stop if a new government reneges on the bailout deal.

That could cause such misery that Athens would be eventually forced to leave the 17-member eurozone, reverting to a deeply devalued version of its old drachma currency. The same might happen if the steady outflows of deposits seen over the past two and a half years turns into a bank run, bleeding lenders dry and forcing the government to freeze remaining deposits.

Since the Greek debt crisis broke in late 2009, depositors have slowly pulled some (EURO)72 billion ($90.24 billion) from local lenders, with total household and corporate deposits standing at (EURO)165.9 billion ($207.94 billion) in April, according to the latest data from the Bank of Greece.

Some of that money was spent, much was redeposited or invested abroad, while a portion has also been hidden away in homes, despite the risk of burglary or accident.

"Most people prefer to place their deposits in bonds issued by other eurozone countries or in eurozone bank accounts," said Theodore Krintas, managing director at Attica Wealth Management. "Behavior varies as each depositor reacts according to what they have heard from friends or family, and much less in an organized structured way _ as the case should be _ by diversifying in several countries."

Other analysts say a lot of money came into the Greek banking system shortly before the crisis, creating a jump in deposits of around 15 percent when the economy was not so vibrant.

Deposit outflows eased in March and April, following Greece's second international bailout and a massive writedown in its privately-held debt, but resumed in May after the election results. In a few days after the May 6 ballot, some (EURO)800 million ($1 billion) were pulled out.

Another Greek banker, a senior official with a leading lender, said that his customers had not stepped up withdrawals in recent days ahead of the new vote.

"The outflows are continuing but they have not increased, compared with what happened after the May 6 elections," he said. "There was an increase then, and since then the outflow is steady. We haven't seen an explosion in recent days."

Both Greek banking officials spoke on condition of anonymity, due to the sensitive nature of the issue. The central bank and the finance ministry declined to comment.

Bank deposits tend to shrink during a recession, which Greece has been in for almost five years. But the outflows have been about a broader lack of confidence in the country's banking system.

Local banks, while healthy when the crisis broke out, have since been hammered. In particular, they suffered massive losses from their participation in the government's debt writedown. Greek banks were among the biggest holders of the government's bonds.

Last month, the country's four main lenders received (EURO)18 billion ($22.56 billion) to avoid going bankrupt due to the losses on the government bonds. The government has a total of (EURO)50 billion ($62.67 billion) in funds earmarked for the banks as part of the country's second bailout.

The second banking official said it was hard to predict how the deposit withdrawal trend would develop after the elections, especially if the anti-austerity leftists win.

"Everything is possible," he said.

Krintas said he was optimistic that whoever wins will respect public opinion, which overwhelmingly wants to keep the euro.

"When faith in a system has been shaken, then any event can act as a catalyst so that the weak remaining faith evaporates and events take the form of an avalanche," he said.

"I personally believe that because a very high percentage of Greeks want to keep using the euro ... Greek politicians will think very carefully before flying in the face of public opinion."