Race for Capital Adequacy - International Law Office

A recent €1.25 billion share issue by the National Bank of Greece has caught most of the other major Greek banks off guard. The bank has anticipated the need for capital in the banking sector throughout Europe and has chosen to lead, rather than follow, the trend, considering the relative shortage of investment appetite. With this move the bank allegedly intends to:

• sweep available investment cash;
• improve its Tier 1 capital; and
• create capital reserves and relative flexibility.

This will afford the bank the opportunity to push its organic growth or participate in the next round of regional consolidation and thus take advantage of opportunities created by the current crisis.

Reaction from other players in the Greek market was consistent - most claimed that they did not need to follow the bank. In reality, smaller banks have already launched or are implementing capital increases, while EFG Eurobank and the Bank of Cyprus have issued convertible hybrids, thus indirectly following the trend. All players, including the National Bank of Greece (which is said to be considering bond issues in addition to the capital increase), are looking for the next opportunity, considering the rather shallow waters of the Athens Stock Exchange.

On July 1 2009 the Greek credit rating bureau Teiressias introduced a credit-scoring system. The system has been developed in cooperation with Crif Decision Solutions and is fundamental for credit risk assessment under Basel II. The effect of credit scoring, particularly in mortgage and consumer loans (the latter, together with credit cards, being the most toxic product in the Greek market), remains to be seen.

For further information on this topic please contact Dimitri N Cocalis at Cocalis & Psarras by telephone (+30 210 361 3661), fax (+30 210 364 1258) or email (cocalis@tclaw.gr).