Four largest banks in Greece successfully passed the ECB stress test
On May 5, the European Central Bank (ECB) published the results of the stress test of the four largest banks in Greece: with an unfavorable scenario, in the next three years their capital will fall no less than the minimum requirements of the ECB, which indicates the successful completion of a multi-year restructuring period.
To assess the state of banks, the ECB uses the coefficient of basic capital of the first level (Common Equity Tier 1, CET1) – this capital must be sufficient to cover possible unexpected losses of the bank in case of recession, low interest rates, currency weakening and falling real estate prices. The ECB is considering two scenarios: in the baseline scenario, the ratio should fall not lower than 8%, while unfavorable – 5.5%.
The baseline verification scenario provided for the growth of Greece’s GDP in the next three years by an average of 2.4%, an unfavorable growth of 1.3% and 2.1% in the economy in 2018 and 2019, respectively, and an increase of only 0.2% in 2020. According to the results of the stress test, with a negative scenario of the development of the Greek economy, the capital of the largest banks in Greece may be reduced by an average of 9 percentage points or 15.5 billion euros: the CET1 Alpha Bank coefficient may decrease to 9.7% by 2020, National Bank of Greece (NBG) – up to 6.9%, Eurobank – up to 6.8% and Piraeus Bank – up to 5.9%.
The purpose of the stress test is to assess whether Greek banks will need additional capital before negotiations begin on Greece’s withdrawal from the eight-year financial aid program in June. Despite the fact that in an unfavorable scenario, all banks will suffer significant losses, their CET1 ratios will not fall below the minimum threshold recommended by the ECB. This suggests that the restructuring of Greek banks was successful. Although Greece now ranks first in Europe in terms of the number of problem loans (approximately 50% of the total number of loans), by 2019, Greece plans to reduce their volume from 96 to 65 billion euros.
What awaits the Greek real estate market
The fact that the largest banks in Greece have successfully passed the ECB stress test, signals not only the gradual recovery of the financial sector, but also positive changes in the local real estate market. The lack of financing is the main reason why housing prices are not yet growing at a fast pace. As soon as property buyers get access to loans, homes and apartments in Greece will start to grow rapidly.
Athens real estate market is already recovering:
• According to statistics from the Bank of Greece, at the end of 2017, real estate in the Greek capital was 44% cheaper compared to the peak in 2008. The decline in the cost per square meter is slowing down: in 2015, it fell by 5.3%, in 2016 – by 1.8%, and in 2017 – only by 0.9%. On a quarterly basis, the fall in prices has already stopped: from April to December 2017, the value of real estate was kept at the same level.
• According to others, real estate in Athens is already going up. As the results of the study of the International Monetary Fund (IMF) “Global Financial Stability Report April 2018: a Bumpy Road Ahead”, the Greek capital ranked 13th in the growth of housing prices in the list of 42 largest cities in the world: according to the IMF, from 2013 to 2017 Over the years, real estate in Athens has risen in price by almost 10% per year. At the same time, experts note, prices in the whole country continued to decline.
• Demand for real estate is growing: according to the Bank of Greece, in 2017, the number of real estate transactions in the city increased by 18% compared to 2016, and in the first two months of 2018 – one and a half times compared to the same period in 2017.
• The real estate market is recovering thanks to growing tourism. According to estimates by research company Euromonitor International, today Athens is the second city in Europe in terms of growth in the number of tourists: the number of arrivals from abroad in 2017 was 4.8 million, 10% more than in 2016.
• The demand of foreigners is heated by cheap “golden visas”: a residence permit in Greece can be obtained by purchasing a property worth only 250 thousand euros, while in other competing markets – in Spain and Portugal – the minimum threshold is 500 thousand euros. from 2013 to 2017, under the “golden visa” program, 5.7 thousand investors and their family members received a Greek residence permit.
According to experts Tranio, this is the ideal time for investment in real estate in Athens: prices per square meter have reached the bottom and are ready to grow. Now investors have the opportunity to buy high-quality apartments at a low price, rent them out and secure a net yield of 5% per annum and sell them at a higher price in the future. Foreign buyers have already revived: according to the Bank of Greece, the total value of transactions that foreigners entered into on the Greek property market in 2017 is 86.5% higher than in 2016.