Greek banks are under growing political pressure to merge as second-quarter earnings probably slumped on rising loan losses and worsening asset quality in the debt-burdened country.

National Bank of Greece SA, EFG Eurobank Ergasias SA, Alpha Bank SA and Piraeus Bank SA, which will report results within the next week, have been called upon to consider partnerships by Greek Finance Minister George Papaconstantinou and Bank of Greece Governor George Provopoulos. Profits at the lenders probably fell more than 60 percent in the period, according to analysts’ estimates.
Merger speculation has increased after Piraeus offered last month to buy the state’s holdings in Agricultural Bank of Greece SA, the only one of the country’s banks to fail the European Union’s stress tests, and Hellenic Postbank SA. Mergers may help banks cut costs, strengthen balance sheets and provide better access to capital markets and funding opportunities after they probably posted an increase in loan losses and non-performing loans as well as deposit outflows.
While consolidation “does not solve the liquidity, bad debt and sovereign problems of Greek banks,” it may help reduce competition for deposits and drive cost savings, said Pawel Uszko, an analyst at Macquarie Research in London. “So consolidation would be, on balance, beneficial.”
Foreign banks are unlikely to buy Greek banks at the moment because of the “uncertain sovereign backdrop and earnings pressures,” Uszko said. “Mergers between big players are more likely, but only to the extent the price is right.”
National Bank, Greece’s largest lender, dropped 2 percent to 10.09 euros as of 12:51 P.M. in Athens, while EFG Eurobank fell 1.3 percent to 5.24 euros. Alpha and Piraeus declined 2.5 percent to 5.41 euros and 4.3 percent to 4.20 euros, respectively. Banks stocks retreated across Europe today.
Greece’s government aims to reduce the budget deficit from 13.6 percent of gross domestic product last year, the second- largest gap in the EU after Ireland, to within the EU limit of 3 percent in 2014. The economic crisis has led to soaring funding costs for Greece and a slump in the value of government debt, some of which is held by the country’s banks.
National Bank will probably say second-quarter net income fell 72 percent to 109.7 million euros from a year earlier, according to the average estimate of nine analysts surveyed by Bloomberg. EFG Eurobank’s profit may have declined 65 percent to 30.7 million euros, while Alpha’s net income probably dropped 74 percent to 33.3 million euros. Piraeus may report a 17.6 million-euro loss, compared with a 77 million-euro profit.
The country’s lenders have largely been cut off from the money markets, forcing them to rely on funding from the European Central Bank at a time when deposit outflows from their domestic units have reduced their traditional funding base.
The banks’ dependence on the ECB for funding and the worsening asset quality is likely to lead to mergers and capital injections, Alexander Kyrtsis, an analyst at UBS AG in London, wrote in a report this month.
(Source: Bloomberg)