Since the start of the year, four systemic Greek banks have issued €5 billion in senior and €2.75 billion in subordinated bonds, per BoG report.
Greek banks are currently navigating the intricate waters of international bond markets with a vigor that is both commendable and noteworthy. As they engage in active issuance activities, one cannot help but ponder the implications of the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) on their strategic maneuvers. The recent decline in interest rates has proven to be a double-edged sword, significantly alleviating borrowing costs for these financial institutions while simultaneously presenting a tantalizing opportunity to replace older, more expensive bond issues with new ones that offer lower costs for banks and potentially higher returns for investors. However, this process is not without its caveats; it necessitates a meticulous approach to timing and market conditions, lest investors become disenchanted and withdraw from future issuances.
In the realm of Greek bank issuances, the four systemic banks have collectively raised an impressive €5 billion through senior bonds and an additional €2.75 billion via subordinated bonds since the onset of the year, as reported by the Bank of Greece (BoG). This activity is not merely a flash in the pan; it builds upon a substantial foundation of approximately €13 billion in bond issues since 2018. The current landscape reveals that the cost of issuing these bonds in the primary market is markedly lower than in previous years, a phenomenon attributed to a confluence of factors: a decline in yields across the European market for bank bonds, recent upgrades in the credit ratings of Greek banks, and the elevation of Greece’s sovereign credit rating to investment grade last year.
The ripple effects of these upgrades are palpable. The ratings assigned to Greek systemic banks by the three major credit rating agencies—S&P, Moody’s, and Fitch—now hover tantalizingly close to the investment category, with positive outlooks that suggest a brightening horizon. This shift has engendered a reduction in funding costs for Greek banksin international capital markets. Notably, following S&P’s announcement of a positive outlook for Greece’s sovereign credit rating in April 2023, the average yield on senior bank bonds has plummeted by approximately 440 basis points. Such a dramatic decline is not merely a statistical anomaly; it reflects the broader economic realities and forecasts posited by the Bank of Greece.
As we delve deeper into the specifics, it becomes evident that the systemic Greek bankshave issued senior bonds with a weighted average yield of 4.3% and lower seniority bonds at 6.2%—both figures representing a significant reduction of around 240 and 350 basis points, respectively, compared to the previous year. This strategic issuance of new securities at lower borrowing costs not only facilitates the repayment of higher-cost bonds but also contributes to a structural enhancement of banks’ net interest income. Remarkably, this development occurs without imposing additional burdens on the borrowing costs faced by the real economy.
With the ratings of Greek banks now perched on the precipice of investment-grade status, the trend of declining bond yields is anticipated to persist, heralding substantial economic benefits. The easing of funding costs, coupled with a burgeoning interest from investors, paints an optimistic picture for the future of Greek banks and their role in the broader financial landscape. In this intricate dance of finance, one can only hope that the rhythm remains steady and the steps sure, lest we find ourselves in a misstep that could reverberate throughout the economy.
