Report from the International Monetary Fund (IMF), European Central Bank (ECB) and European Commission.
Interne Begutachtung der Situation in Griechenland durch Internationalen Währungsfonds (IWF), Europäische Zentralbank (EZB) und Europäische Kommission.
Recent developments call for a reassessment of the assumptions used for the debt
To give the debt sustainability analysis a firmer foundation, the following set of
more likely policy and macroeconomic outcomes has been assumed
A slower recovery.
Lower privatization proceeds.
Reduced fiscal adjustment needs.
Delayed access to market financing.
Under these assumptions, Greece’s debt peaks at very high levels and would
decline at a very slow rate pointing to the need for further debt relief to ensure
Stress tests to this revised baseline illuminate further the problem with
sustainability, revealing that the downward debt trajectory would not be robust to
• All else unchanged, significant shortfalls relative to the revised fiscal and
privatization targets would deteriorate debt dynamics even further:
Lower primary balances.
Shortfalls with privatization receipts.
Permanent growth and interest rates shocks can lead to unsustainable debt
A combined shock—to represent a scenario of strong internal devaluation
enforced by a much deeper recession—would sharply raise debt in the near-
Greece is assumed to return
to the market at spreads falling from 500 bps to 250 bps by 2020
Growth in Russia will remain reasonably strong particularly in the run-up to elections in 2012 and output there is expected to grow by 4 per cent in 2011 and by 4.2 per cent in 2012.
The 2012 growth forecast has been downgraded in this region most substantially for Hungary and the Slovak Republic, the two transition countries that are the most exposed to the eurozone.
Southern and eastern Europe is seen growing at 1.7 and 1.6 per cent in 2011 and 2012, respectively, with the 2012 growth rate more than 2 points below the July forecast.
The outlook has worsened the most in this area for Albania, Romania and Serbia, which are heavily exposed to the troubled Greek economy.
Turkey’s growth is expected to slow down significantly to 2.5 per cent as a result of declining capital inflows and credit growth, as well as weakening external demand.
Both Standard & Poor’s and Moody’s are due to visit Hungary over the next few weeks, with Fitch due in the next six months, and all the signs point to a downgrade.
Government policies are making investors very uncomfortable. Last month Hungary announced a plan to allow currency-hit mortgage holders to offload some of their losses onto their banks (the central banks estimates Hungarians may owe some €20bn in foreign currency-denominated loans) and SocGen has voiced widely shared concerns that the policy will be extended:
There have been discussions lately that the current foreign-currency offer, which ends on December 30th, could be followed by similar measures in 2012 to further reduce the stock of foreign-currency denominated mortgages. Such measures would yet again put the Hungarian banking sector under scrutiny and increase concerns about the policy making process in Hungary.
October 21, 2011 7:17 pm
French banks urged to raise Greek debt haircut
By FT reporters
The French stock market regulator has advised French banks to take bigger losses on their holdings of Greek government bonds, arguing that the relatively small writedowns announced in recent months were now seen as insufficient.
French banks have more cross-border exposure to Greece than any other country, mainly through subsidiaries owned by Crédit Agricole and Société Générale. BNP Paribas holds the most Greek sovereign bonds among private sector investors, with €4bn of exposure.
Many analysts expect the banks to take a bigger haircut when they report their third-quarter earnings next month. BNP Paribas has already said that a 55 per cent impairment would lead to a provisioning of €1.7bn, on top of the €534m taken at the end of the first half.
Across Asia, Eastern Europe, Latin America and elsewhere around the world, banks are tightening credit standards and facing an increase in bad loans, according to the survey to be released Friday by the Institute of International Finance, a global association of big banks.
Background on the CDS portfolio (protection sold)
In the years up to 2008 Erste Group built up a diversified portfolio of off-balance sheet sovereign and bank risk positions (CDS sold), which – as credit surrogates (financial guarantees) – were held at amortised cost. As at 30 September 2011 the total volume amounted to EUR 5.2 billion (at amortised cost):
- EUR 2.4 billion related to financial institution exposures, and
- EUR 2.8 billion related sovereign exposures
- About 14% or EUR 0.7 billion of the total volume is related to banks and the sovereign in Greece, Portugal, Spain, Ireland and Italy
- Write down the entire goodwill related to the acquisition of Postabank in 2003 in the amount of EUR 312 million pre-tax (EUR 312 million post-tax). This one-time charge will impact the income statement in 2011, but will not impact regulatory capital or tangible equity.
- Create a provision of EUR 200 million pre-tax (EUR 200 million post-tax) to cover the expected loss from the forced conversion of FX into HUF loans at non-market rates, assuming a participation rate of 20% and an expected exchange rate loss of 25%.
- In light of the deteriorated legal certainty and economic prospects in Hungary raise its target NPL coverage ratio to 62%, leading to additional risk provisions of EUR 250 million pre-tax (EUR 250 million post-tax)
- Based on the above, recapitalise Erste Bank Hungary by injecting up to about EUR 600 million of new equity into the bank.
As a consequence, Erste Group will partially write down its goodwill in Romania by EUR 700 million pre-tax (EUR 627 million post-tax). This one-time charge will impact the income statement in 2011, but will neither impact regulatory capital nor tangible equity.
Following a successful buyout of the SIF minority shareholders – as announced on 14 September 2011 – the remaining BCR goodwill of EUR 1.1 billion will be supported by a substantially larger share of BCR’s cashflow.
Summary table of extraordinary charges
|Measure/post-tax impact on:
in EUR million
|IFRS shareholders’ equity||Regulatory capital||Tangible equity|
|1-9 2011||Cumulative historic impact to 30 September 2011|
|Hungary FX provision||200||200||200||200|
|Hungary general provision||250||250||250||250|
|Effective interest rate||10||220||0||220|
|Total impact (post-tax)||1,579||2,069||760||1,130|
|Forecast 2011 retained earnings before one-offs||+700-800|
|Forecast regulatory capital impact||0|