Dec 2019 Interview with Mr. Konstantinos Mitropoulos, Chairman of the Board – ATTICA BANK
Prisma Reports: Greece has gone a long way since 2008 and the crisis years. How would you describe the current macro-economic climate of the country, and the economic performance of Greece in 2019? How has the perception of Greece as investment destination by the international business community evolved in recent years? Do you see a return of investors’ confidence? Moreover, how has the banking sector’s image changed?
Konstantinos Mitropoulos: Investment is a critical parameter on which we need to focus, and which must accelerate. If investments remain at today’s level, our economy will hopefully keep growing at a rate of 1,5 to 2.2%. To grow at a rate of 4% or 4,5% we will need a considerably larger amount of investment every year.
Historically, FDI make a very small amount in the annual investment, and never exceeded 8% of the total investment in Greece. Consequently, you would not except FDI will amount to say a billion more every year; it has never happened historically. What is realistic to hope for is that the Greek capital zone will become again productive, that we will invest in physical assets which will fuel growth. One of the key objectives of this government is to mobilize Greek capital to productive uses.
Prisma Reports: In July this year Moody’s changed its deposit rating on Greek banks Alpha, Eurobank and NBG to positive from stable, citing expectations of further improvement in asset quality, the ratings agency said on Tuesday. Fitch had also upgraded Greek banks’ rating earlier in May. How would you assess the strength and capacities of Greek banks today? How has the industry transformed and reinvented itself during the challenging economic crisis that saw the Greek economy contract by 25%?
Konstantinos Mitropoulos: The whole banking landscape has changed dramatically. Before the crisis there were 25 banks; now there are five banks, including Attica bank, and a number of smaller banking institutions such as Praxia, Optima and cooperative banks that survived the crisis. The majority of the banks extinguished themselves during the crisis. Almost 98% of the market share today belongs to the four systemic banks which doesn’t help competition, doesn’t help innovative thinking; it is a totally different less dynamic landscape. On top of that, all the Greek banks have a huge amount of NPLs on their balance sheets and now they are shedding them gradually by securitising a large deal.
The new asset protection scheme could be helpful, and will help the system shed down even faster the NPLs. Attica Bank securitised the first lot in 2017, the second lot was securitised in 2018 and we had an amount of €700 million which I think will be securitised in 2020. After that, hopefully we will become the first Greek bank with no non-performing loans from the past; only new production NPLs. We hope we will be able to do that in 2020 as it is obvious that NPLs have a negative impact on our balance sheet. It also makes an impact on management because we spend most of our time solving the problem of NPLs; it consumes all the creativity and talent that the management team has, and at the end of the day the best thing you can hope for is that you will securitise yourself at least a relatively small amount compared to the total that you have. Last year we had a total of 12 billion of NPLs changing hands and this means that it will take from 5 to 6 years to get rid of the rest. NPLs really take away the competitive spirit in the banks, the innovative and creative thinking, as you are always stressed with your balance sheet. You are always stressed with capital which becomes more expensive.
NPLs are a strong contributing factor to keeping the cost of capital high in Greece. Capital is unreasonably high the moment. We need to get rid of NPLs to reduce the cost of capital. As long as they are in our balance sheet they’ll make our life difficult. In an environment of negative interest and high liquidity, we are a spot with high interest rates and no inflation. That’s something that doesn’t work systemically and it’s our task to reverse the issues and rebalance the system. This government is moving in the right direction and hopefully will bring a positive and dynamic equilibrium into the economy moving towards growth.
Prisma Reports: When we met with Mr. Karavias of Eurobank, he strongly stressed the role of local banks to support entrepreneurship and innovation in the country, to support the real economy, and economic recovery in other words. How does Attica Bank participate to the real economy, and in point us to some concrete measures whereby Attica helps and promote entrepreneurship and SMEs development in Greece? How complicated is it for Greek banks to lend to SMEs and entrepreneurs today, with the risk that it bears?
Konstantinos Mitropoulos: Eurobank has always been a progressive bank and in terms of promoting entrepreneurship and innovation and start-ups they have a long history. This promotion of entrepreneurship does not translate to giving loans to SMEs though. There are two distinct problems: 1) the banks having the money to lend (and they have) and 2) the entrepreneurs willing to do the projects. The difficulty we have with the cost of capital where it stands, is for entrepreneurs to find projects with ROIs in excess of 10-12%. The marginal cost of debt is around 8% and the marginal cost of equity is around 15%, that makes a weighted average cost of capital of 12% – you won’t get easily projects that yield in excess of 12%.
An entrepreneur facing the question of doing or not doing a project will probably be asked to commit some of his/her own funds, some equity. If profitability of the project is below 10% p.a., so you start wondering if you should are just consuming your own equity. [If I just borrow the amount at the 8% rate, I will probably lose the value of the investments within 10 years] That is particularly true when you need to buy equipment, the next technology generation equipment. This is needed in order to compete with other key players in the market who acquired the same technology. In terms of product quality and cost, you need to buy. All in all, you have to invest to produce something cheaper to preserve the same margin that you had before the investment.
Consequently, you won’t be able to pay for the capital. This is a real microcosmic problem that all SMEs face. Having lost practically 10 years of non-investment, SMEs are technologically behind the competition and because of the high cost of capital they are unable to catch up. This is the real obstacle to a fast-growing economy. It is unlikely to see in the market projects that double capacity and produce new products or type of models that redefine the market. Most of them operate in well-defined legacy markets and they compete on cost and quality. One of the ways to help is to bring the cost of capital go down – that will help a new wave of investment. It won’t be huge but it will help. Without that, not much will happen.
Prisma Reports: Attica Bank is one of the less systemic banks of Greece, and the largest bank after the 4 systemic. Was established almost 100 years ago in 1925 and is a dynamic financial services company, offering a full range of banking and investment products and services as well as deposits, insurance products, mutual funds and brokerage services, for individuals, small & medium enterprises and large companies. Can you give us a rapid tour of Attica Bank, how does it stand out in Greece’s banking industry? How has it been repositioning lately?
Konstantinos Mitropoulos: Attica Bank is not a universal bank and it needs to grow very fast. Our objective is to double the size in 5 years, to double the size in lending and to double the size in deposits. We intend to become increasingly digital and we are in the process of acquiring the technologies for that.
We want to be a bank that solves problems, not a bank that sells products.
Prisma Reports: How does innovation translate at Attica Bank? Can you give us some examples of breakthrough or disruptive technologies, or innovative new products that you have introduced at Attica Bank? How is the bank adapting to the latest advancement and opportunities offered by fintech, blockchain and AI?
Konstantinos Mitropoulos: We are moving fast with our digitalization program: we are going to be the first fintech bank in Greece in effect, licensing our own technology not developing it. It will be possible for our customers to do anything from their smartphone and have services such as borrowing money digitally. We will become fintech because we need to differentiate ourselves. Physical branches and physical interfacing will play a very strong role for the years to come and we’ll need to embrace an environment where we advise and take care of our clients as well as solving their problems efficiently.
In terms of partnerships, we are open to any discussion. We first need to establish our position here, and then we’ll decide on the next moves.
Prisma Reports: How would you summarize your mission and visions at the moment? What kind of legacy would you like to leave and what would you like to achieve?
Konstantinos Mitropoulos: Our core mission is to find balance and strengthen our presence in local societies while keeping adapting our services technologically in the coming years. It will be expensive but there is no other option to continue surviving in the Greek banking sector.
Our bank is distinct, pleasant, innovative, Intelligent and GREEK.