1. 1 st Bank of Greece Workshop on Economies of the Eastern European and Mediterranean Countries on Economies of the Eastern European and Mediterranean Countries The Global Financial Crisis and SEE: Lessons for macroeconomic policy and financial stability Charalampos Vogiatzis Athens, 14 May 2010 Session II : Preserving financial stability: the supervisors’ perspective

2. Preserving Financial Stability: The Supervisors' Perspective 2 Presentation  Supervisors, financial stability and the current crisis : exploring the topic  Greek banking groups: a crucial factor for the stability of the region  Bank of Greece Response as home and host supervisor  Cross-border Cooperation  Addressing concerns for Greek fiscal crisis implications  Conclusions

3. Exploring the topic

4. The players and their interaction Exploring the topic

5. Preserving Financial Stability: The Supervisors' Perspective 5 Presentation  Supervisors, financial stability and the current crisis : exploring the topic  Greek banking groups: a crucial factor for the stability of the region  Bank of Greece Response as home and host supervisor  Cross-border Cooperation  Addressing concerns for Greek fiscal crisis implications  Conclusions

6. 6 Greek Banks in SEE & CEE. ALBANIA NBG ALPHA BANK PIRAEUS BANK EMPORIKI BANK TURKEY NBG EUROBANK FYR MACEDONIA NBG ALPHA BANK SERBIA NBG EUROBANK ALPHA BANK PIRAEUS BANK ATE BANK POLAND EUROBANK BULGARIA NBG EUROBANK ALPHA BANK PIRAEUS BANK EMPORIKI BANK ROMANIA NBG EUROBANK ALPHA BANK PIRAEUS BANK EMPORIKI BANK ATE BANK MARFIN EGNATIA UKRAINE ALPHA BANK PIRAEUS BANK EUROBANK

7. Greek Banks in SEE & CEE. At the end of 2009 24 banks 24 banks 2.897 business units 2.897 business units 38.811 employees 38.811 employees Total loans to customers in New Europe € 47.3 billion Total loans to customers in New Europe € 47.3 billion Profits exceeding € 390 million Profits exceeding € 390 million

8. 8 SEE entities significant both for domestic markets and the Greek groups. Greek Banks’ market shares in host countries Market Share (% assets) 26,5% 29,0% 15,9% 16,3% 28,0% 4,6% 1,6% 2,1% 19,8% 6,4% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% AlbaniaBulgariaRomaniaSerbiaFYROMTurkeyUkrainePolandTotal New Europe Total SEE

9. 9 Greek banking groups credit expansion in the region 3.8% during Q1 2010 (total loans at end of Q1 2010 € 49.1 billion) Greek banking groups credit expansion in the region 3.8% during Q1 2010 (total loans at end of Q1 2010 € 49.1 billion) Meeting financing needs of local economies

10. Long standing commitments Despite liquidity squeeze funding from parent institutions remained unchanged (€ 18 billion) Despite liquidity squeeze funding from parent institutions remained unchanged (€ 18 billion) Increase of local deposits by 4.7% during Q1 2010 without increasing deposit interest rates Increase of local deposits by 4.7% during Q1 2010 without increasing deposit interest rates Loans to deposits ratio improved but still high (163% at end of March 2010) Loans to deposits ratio improved but still high (163% at end of March 2010) Funding to cross border entities is not considered as a liquidity source for parent institutions Funding to cross border entities is not considered as a liquidity source for parent institutions

11. 11 Economic conditions in Eastern Europe have been deteriorated since Q4 2008 but in many cases things seem to be stabilised Economic conditions in Eastern Europe have been deteriorated since Q4 2008 but in many cases things seem to be stabilised Positive effects from IMF intervention Positive effects from IMF intervention Less foreign capital flows Less foreign capital flows Depreciating local currencies and relevant implications for foreign currency denominated loans and equity participations Depreciating local currencies and relevant implications for foreign currency denominated loans and equity participations Supervisory concerns

12. 12 Reduction of import demand from the rest of Europe due to the crisis implications Reduction of import demand from the rest of Europe due to the crisis implications Implications of fiscal crises in home countries Implications of fiscal crises in home countries Asset quality deterioration on the back of the worsening operating environment Asset quality deterioration on the back of the worsening operating environment Slow down of credit expansion Slow down of credit expansion Decreased operating income and profits Decreased operating income and profits Supervisory concerns

13. Preserving Financial Stability: The Supervisors' Perspective 13 Presentation  Supervisors, financial stability and the current crisis : exploring the topic  Greek banking groups: a crucial factor for the stability of the region  Bank of Greece Response as home and host supervisor  Cross-border Cooperation  Addressing concerns for Greek fiscal crisis implications  Conclusions

14. 14 Active support of the European Bank Coordination Initiative. Active support of the European Bank Coordination Initiative. Encourage banks to keep their SEE subsidiaries well capitalized. Encourage banks to keep their SEE subsidiaries well capitalized. Monitoring of fundamental figures on a monthly basis. Monitoring of fundamental figures on a monthly basis. Suggestions to promote further their risk management practices and internal control systems in the region. Suggestions to promote further their risk management practices and internal control systems in the region. BoG supervisory response For entities in SEE….

15. 15 ….and for the Group Pre-emptive action to increase the loss absorption capacity of Greek Banks (Tier I> 8%). Pre-emptive action to increase the loss absorption capacity of Greek Banks (Tier I> 8%). Testing the resilience of the banking sector under IMF assumptions. Testing the resilience of the banking sector under IMF assumptions. Frequent on-site examinations (e.g. adequacy of loan provisions) Frequent on-site examinations (e.g. adequacy of loan provisions) Close monitoring of Greek banks' liquidity positions and contingency funding policies. Close monitoring of Greek banks' liquidity positions and contingency funding policies. BoG supervisory response

16. Preserving Financial Stability: The Supervisors' Perspective 16 Presentation  Supervisors, financial stability and the current crisis : exploring the topic  Greek banking groups: a crucial factor for the stability of the region  Bank of Greece Response as home and host supervisor  Cross-border Cooperation  Addressing concerns for Greek fiscal crisis implications  Conclusions

17. 17 Strong Home/Host co-operation before the crisis…. Bilateral MoUs Bilateral MoUs Governor’s Club meetings Governor’s Club meetings SEE Multilateral MoU. SEE Multilateral MoU. Joint Inspections Joint Inspections Exchange of findings reports Exchange of findings reports Home host cooperation

18. 18 ….and in the aftermath of the crisis Bilateral meeting of Governor’s and Heads of Banking Supervision with the participation of banks’ top management. Bilateral meeting of Governor’s and Heads of Banking Supervision with the participation of banks’ top management. Speed up the settlement of Colleges of Supervisors Speed up the settlement of Colleges of Supervisors Arrange Joint Risk Assessment issues on an horizontal basis. Arrange Joint Risk Assessment issues on an horizontal basis. Home host cooperation

19. 19 ….and in the aftermath of the crisis (2) Exchange of visits of home and host supervisors Exchange of visits of home and host supervisors Comprehensive communiqués Comprehensive communiqués Immediate provision of information for urgent issues - teleconferences Immediate provision of information for urgent issues - teleconferences Participation in EU programs Participation in EU programs Home host cooperation

20. Preserving Financial Stability: The Supervisors' Perspective 20 Presentation  Supervisors, financial stability and the current crisis : exploring the topic  Greek banking groups: a crucial factor for the stability of the region  Bank of Greece Response as home and host supervisor  Cross-border Cooperation  Addressing concerns for Greek fiscal crisis implications  Conclusions

21. 21 Unlike other countries, the challenges facing the Greek commercial banks do not originate in the banking sector. Unlike other countries, the challenges facing the Greek commercial banks do not originate in the banking sector. This is a fiscal crisis that have negative effects on the banking sector unless it is forcefully addressed in the coming months. This is a fiscal crisis that have negative effects on the banking sector unless it is forcefully addressed in the coming months. Greek commercial banks proved sound and resilient Greek commercial banks proved sound and resilient Addressing concerns for Greek fiscal crisis implications

22. 22 Credit risk higher but not accelerating Credit risk higher but not accelerating More conservative credit policies and higher provisions More conservative credit policies and higher provisions Market risk exposure contained Market risk exposure contained Liquidity position under pressure but manageable thanks to ECB Liquidity position under pressure but manageable thanks to ECB Effective state support plan Effective state support plan Addressing concerns for Greek fiscal crisis implications

23. 23 SE Europe more of an opportunity than a challenge. Greek eentities in the region well funded and capitalized to reduce contagion risk SE Europe more of an opportunity than a challenge. Greek eentities in the region well funded and capitalized to reduce contagion risk Intensified on site examinations Intensified on site examinations Communication with top management and treasurers of banks almost on a daily basis Communication with top management and treasurers of banks almost on a daily basis Addressing concerns for Greek fiscal crisis implications

24. 24 Banks required to develop a new strategy for the new era Banks required to develop a new strategy for the new era Involvement of Board of Directors Involvement of Board of Directors Exit plans Exit plans Increased frequency of reporting Increased frequency of reporting Improve systems and controls Improve systems and controls Addressing concerns for Greek fiscal crisis implications

25. Joined IMF-EC-ECB plan: Credible plan of € 110 billion which addresses funding needs of Greece for the next crucial years Credible plan of € 110 billion which addresses funding needs of Greece for the next crucial years Political will to implement the strict austerity measures. Political will to implement the strict austerity measures. Stability fund with €10 billion available to further boost banks’ capital if needed Stability fund with €10 billion available to further boost banks’ capital if needed Regular reviews of the Greek banking system by experts of the three institutions Regular reviews of the Greek banking system by experts of the three institutions

26. Addressing concerns for Greek fiscal crisis implications In addition ECB decision for the eligibility of Greek Government Bonds ECB decision for the eligibility of Greek Government Bonds Expansion of state plan by € 15 billion Expansion of state plan by € 15 billion ECB decision to intervene in public and private debt markets to ensure liquidity in financial segments that are dysfunctional. ECB decision to intervene in public and private debt markets to ensure liquidity in financial segments that are dysfunctional. EU package of € 500billion plus IMF contribution of 200-250 billion EU package of € 500billion plus IMF contribution of 200-250 billion

27. Preserving Financial Stability: The Supervisors' Perspective 27 Presentation  Supervisors, financial stability and the current crisis : exploring the topic  Greek banking groups: a crucial factor for the stability of the region  Bank of Greece Response as home and host supervisor  Cross-border Cooperation  Addressing concerns for Greek fiscal crisis implications  Conclusions

28. 28 Europe needs a fundamental overhaul of its financial stability architecture that allows its citizens to enjoy the benefits of financial integration and protects them against the kind of twin fiscal-financial crises that are currently afflicting several member states. The reform of the supervisory and regulatory framework that is currently before the European Parliament is very important, but takes us only half the way. It needs to be matched by an integrated EU crisis management and resolution framework. Conclusions Dominique Strauss-Kahn Brussels, March 2010

29. Thank you! Charalampos Vogiatzis Deputy Director Bank of Greece Department for the Supervision of Credit and Financial Institutions Preserving Financial Stability: The Supervisors' Perspective