Greece is back under the investors’ spotlight! With no market-moving report this week, it was easy to see why traders turned their focus back to one of the region’s most troubled economies.
1. A recent bond auction highlighted the hand-to-mouth survival of Greek banks these days.
Just last Tuesday, Greece sold roughly 4 billion EUR worth of short-term treasury bills mostly to domestic banks – its largest debt sale in two years.
Since most of the proceeds from the sale will be used to redeem 3.1 billion EUR in Greek bonds set to mature next week, the recent bond auction was able to help Greece avoid defaulting on its loan obligations. This just goes to show that, at the end of the day, Greek banks are simply taking on more debt in order to pay for its old debts!
This time around, Greek banks made use of the Emergency Liquidity Assistance (ELA) in order to pay for their treasury bills purchase. Note that they are expected to pledge this bills to the Bank of Greece as collateral in order to be able to secure more loans later on.
2. The non-performing loans (NPLs) ratio has reached a whopping 20%
If getting liquidity wasn’t enough trouble for Greece’s banks, their non-performing loans (NPLs), or loans that are more than 90 days overdue, have also rocketed to 20% of the 240 billion EUR worth of loans to Greek households and firms.
With the Greek recession making it difficult for borrowers to pay their debts, it’s no wonder that NPLs have reached that high! To paint you a picture, Spain’s banks had only declared a 9% NPL ratio last May.
Take note that the 20% ratio doesn’t even count the Greek banks’ exposure to the government. As of June this year, Greek banks stand to lose around 200 billion EUR worth of loans to the government and around 16 billion EUR worth of government bonds and bills if Greece officially defaults on its creditors. Yikes!
3. Greece’s growth prospects aren’t getting better
Early this week we saw that the Greek economy had contracted by 6.2% in the second quarter. The figure didn’t surprise investors as the country is struggling with additional budget cuts, and record high unemployment rate. What’s bothering investors though, is that the recessionary trend is likely to persist thanks to liquidity problems and uncertainty in the markets.
4. Greece’s deadlines are fast approaching
By August 20, Greece should’ve been able to finalize their plans to come up with 11.5 billion EUR in spending cuts as agreed upon under the EU/IMF bailout terms.
By September, the Greek Parliament should’ve been able to discuss and approve that austerity package. Also during that month, the Troika (EU, ECB, and IMF) is set to decide whether or not it will grant Greece another set of bailout funds. Bear in mind that the Troika has already delayed doling out additional funds until Greece gets back on track with its austerity plans.