Greek banks' short-term funding options narrow
Credit: Reuters
* Worries about sovereign default spread to banking sector
* Greek banks have less access to short-term funding
* Rely on ECB, domestic funding
By Alex Chambers
LONDON, Feb 9 (Reuters) - Worries that Greece may default on its debt have forced the country's banks to rely more heavily on central bank and domestic funding as international investors' appetite for Greek short-term bank debt has dwindled.
Markets are betting on a rising chance that highly indebted euro-zone states such as Greece, Portugal and Spain could fail to make interest payments, pushing up the cost of insuring sovereign debt to record levels. [nLDE6140LZ]
"We have been seeing that some of the (wider market's) nervousness for the past two weeks has begun to filter into the short-term markets," said the head of commercial paper (CP) trading at a European bank, asking not to be named.
Bank shares across Europe lost heavily last week as the effect of sovereign debt troubles weighed on outlooks for states' economic growth and on expectations of higher funding costs. The interbank short-term money market in Greece has been gummed up for weeks.
And bank credit risk versus the benchmark corporate credit index has widened to 13 basis points, as expressed by Markit's iTraxx Senior Financials versus the iTraxx Europe Main. This is wider than after the collapse of Lehman Brothers in September 2008 when it was 8-10 bps.
Click below for graphic of how European sovereign default risk has overtaken corporate:
While the Greek government managed to sell an 8 billion euro
($10.97 billion) five-year bond through a bank syndicate in January, none of its banks has sold bonds since Nov. 2009, according to Thomson Reuters data.
Repo markets that provide short-term money have become ever harder to access for the banks since Greek government bonds -- used for collateral in the repos -- were downgraded by rating agencies at the end of 2009.
FEWER BUYERS
And the limited numbers of money market funds that had previously bought commercial paper have now curtailed those purchases, bankers say, putting a halt to another source of short-term funding for Greek banks.
Two of Greece's largest banks are now using the European CP
(ECP) markets substantially less than at the end of the third quarter 2009, according Dealogic's CPWare data.
"For a long time there have been fewer buyers, but in the past weeks its completely died down," said a CP salesman who spoke on condition of anonymity.
"We have not seen any forced sellers, the perception is that there will be a bail-out (of Greece) but people do not want to get involved," the salesman said.
EFG Hellas had $860 million equivalent of ECP at the end of October 2009, but now has only $349 million. And compatriot Piraeus (BOPr.AT), which saw ECP rise to $1 billion at the end of November, now has only $372 million, the data show.
One health warning is that the data could be artificially inflated by flows with non-domestic subsidiaries because Dealogic typically reports at the parent level.
Piraeus has had only a little over $200 million of ECP outstanding at the group level for several months, which might be a fairer reflection of third-party investment.
But either way, this is in marked contast to the 2.37 billion euros equivalent of ECP that Piraeus had in Sep. 2008, and indicates how important ECP used to be as a financing source.
Contagion has not yet spread to the short-term financing markets for Iberian banks, however. While there has been occasional selling of Spanish and Portuguese bank paper, this has been easily absorbed, the CP trader said.
ECB SUPPORT
Before the sovereign-inspired crisis, Greek banks had been left relatively untouched by the credit crunch as they had not got involved in exotic products or overextended themselves in real estate lending.
But Greece's ongoing battle to convince ratings agencies and investors that it can reverse a ballooning budget deficit has been the catalyst for sidelining conservative money market funds and other investors.
It means that Greek banks would have limited funding options should the European Central Bank cease to accept lower-quality collateral for repo lending under its liquidity programme at the end of 2010. [nBAF003899]
(Editing by Douwe Miedema)
($1=.7294 Euro)
((alex.chambers@thomsonreuters.com; +44 (0)207 542 8389; Reuters Messaging: alex.chambers.reuters.com@reuters.net)) Keywords: BANKS GREECE/
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