The audit of the 25 largest corporate clients of Greek banks by the SSM, conducted with extreme rigor and methodology, has deeply concerned bank management teams
A megaton bomb literally went off across Greek banks... according to exclusive information obtained by Banking News. The Single Supervisory Mechanism (SSM), the ECB's supervisory arm that oversees Europe's 120 largest financial institutions and the four Greek systemic banks (National Bank of Greece, Eurobank, Alpha Bank, and Piraeus Bank), has initiated on-site audits, scrutinizing the 25 largest corporate borrowers operating within the Greek banking system.
What is happening?
It all started with the shock surrounding GEK TERNA, an extremely over-leveraged enterprise brought to light by reports published on Banking News (BN). Based on issued loans, corporate bonds, and letters of guarantee, its commitments reach 9.3 billion euros. The issue of GEK TERNA reached the SSM, which demanded that Greek banks immediately submit detailed records concerning their 25 largest corporate clients. The audit is currently in full swing and, according to 100% cross-verified information, the SSM foresees an incoming European economic crisis, placing the loans granted by Greek banks to these 25 major corporations under the microscope. A banking source speaking to BN noted: "The audits are so thorough and strict that they remind us of the 2012 era when banks operated under insolvency status. We have not seen such rigorous inspections on Greek banks in many years, and this is causing us genuine concern."
Why the 25 largest companies?
There are analytical models explaining why supervisors targeted 25 companies rather than 5, as these corporate entities concentrate over 32 billion euros in business loans out of a total corporate portfolio reaching 94 billion euros—accounting for nearly 34% of total corporate lending. The catalyst was the publicity surrounding GEK TERNA that eventually reached the desks of SSM officials. GEK TERNA was clearly the trigger for the SSM to initiate this review across the largest corporate borrowers in Greece. These inspections did not start simply because new SSM executives recently assumed duties and decided to inspect the top 25 borrowers, but rather due to:
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Heightened concerns regarding GEK TERNA's excessive debt leverage.
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Concerns regarding potential fallout on banking balance sheets should a broader European economic crisis erupt.
How do Greek banks lend?
As is well known, corporate loans cannot exceed 20% of tangible equity... and banks must always maintain 60% of their tangible capital—which totals 33 billion euros—free from loan risk exposure. Greek bank executives are well aware that corporate lending and syndicated bond loans in which they participate could turn into balance sheet liabilities during periods of financial stress. BN maintains that GEK TERNA is an over-leveraged corporation—and it is not the only one, as others exist—while GEK TERNA denies being over-leveraged, pointing to its cash reserves... Nonetheless... the fact that the SSM launched an audit into systemic banking institutions triggered by the GEK TERNA case... allows for significant conclusions to be drawn...
Greek banks remain strong in liquidity and capital
The SSM recognizes that under an adverse stress test scenario, Greek banks maintain robust liquidity and strong capital buffers... yet corporate lending to massive conglomerates remains a high-risk sector for financial institutions... However, the SSM is focusing heavily on the deferred tax asset (DTA) volume totaling 8 billion euros, as out of 33 billion euros in total tangible capital, 8 billion consists of DTCs. As popular wisdom puts it: when you owe a bank 10,000 euros, it is your problem... but when you owe a bank 100,000,000 euros... then the bank has a problem.
Conclusion
The audit of the 25 largest corporate clients of Greek banks by the SSM, conducted with extreme rigor and methodology, has deeply concerned bank management teams. These are on-site inspections; regulators are not merely requesting data sent to the ECB and the SSM, but are directly auditing loan agreements, guarantees, and collateral of every kind to construct the exact risk profile of each major Greek bank... The situation is extremely serious, and it all started with GEK TERNA.
www.bankingnews.gr
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