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Given that BoG released its April balance sheet yesterday, it is a nice opportunity to take a fresh look at developments in its major components:

BoG Balance Sheet 2019

The things that stand out are the following:

  1. Regular monetary operations + ELA have been minimized to very low levels of less than €10bn. ELA more or less ended in 2018 since its figures are now basically zero.
  2. Securities purchased in the context of the ECB QE program are now stable around €63 bn.
  3. Total collateral posted recorded an impressive fall from €80bn a year ago to only €16.7bn now, a function mainly of the drop in ELA operations (from €10bn to zero).
  4. Target2 liabilities are down to only €24bn while extra banknotes are now recorded as a (small) net asset instead of a liability suggesting a significant return of cash outside of the banking system.
  5. Government balances have reached almost 2€9bn providing a large enough buffer for debt refinancing needs in the coming future.

The Greek situation has officially been stabilized with any creditor risk substantially minimized. Net Securities (Securities held for monetary purchases minus Target2 liabilities and extra banknotes) are now close to €40bn which means that BoG can easily cover any liabilities towards the Eurosystem even in the case of a Grexit while still maintaining a positive balance of European government securities.

It’s been a while since I last looked into Bank of Greece balance sheet figures and given that the Greek central bank has released its April 2018 numbers I decided to take another quick look into them:

BoG 2018Q1 balance sheet

A few things stand out:

  1. Other claims (which is code for ELA) is down more than €11bn to a total close to €10bn. It is clear that Greek banks are moving closer to eliminating their need for non-standard financing, something which could happen during 2018. Obviously this also means that ELA income for BoG (and by extension for the Greek Treasury) will also show a significant decline (BoG should earn a bit more than €10mn/month as ELA profits by now).
  2. The big drop in ELA was mainly driven by a reduction of almost €16bn in BoG liabilities towards the Eurosystem (Target2 and banknotes) which total €48.4bn.
  3. Since BoG participation in Eurosystem QE continued at a slower pace the ‘Securities held for monetary policy purposes’ registered a further increase to €62bn. This means that BoG has a surplus of €13.5bn in securities held as assets compared to its liabilities towards the Eurosystem which would make a possible Grexit a bit easier since settlement of BoG Euro liabilities would be made using its (Euro government) securities portfolio.
  4. The lower need for CB financing has led total collateral posted at BoG down to €80bn, a figure which is quite manageable and far lower than the peak of €200bn reached during the 2015 turmoil. Most of the collateral are used for ELA financing so a possible elimination of ELA in the near future will make life much easier for Greek banks.
  5. Government deposits at the BoG are now close to €15bn registering an increase of  €4bn during 2018. It seems that the Greek government is continuing its process of accumulating a large cash buffer for its «clean exit» scenario.

Overall BoG balance sheet figures suggest stabilization in external liabilities, ELA financing and a much lower toll on Greek bank profits from ELA loans (BoG should be around €40mn/month lower in April compared to a year ago).

A recent paper tried to perform a very important exercise of evaluating the balance sheet effects of a Euro exit for various Euro countries. Its results were that the relevant sectoral net positions will be the main drivers of balance sheet effects. Periphery risks are concentrated on the net positions of the government and the central bank while the financial and non-financial sectors mostly hold a positive net position.

net position by sector and country

More specific risks do arise from the fact that certain sectors (within countries) have significant levels of short-term debts, although this fact does not change the overall picture substantially.

Debt by sector and country

I would like to use this opportunity in order to take a detailed view at the sectoral balance sheet risks from a Grexit scenario relying on BoG Greek NIIP data (data are for 2016Q3). I am focusing on specific categories and not taking categories such as direct investment or derivatives into account.

Greek Sectoral NIIP 2016Q3

On the asset side:

  • BoG now holds a large stock of foreign bonds as a result of its participation in the ECB QE program.
  • MFIs have a total of €19bn in deposits and €59bn in bonds a loans. Nevertheless, a large part of the latter are EFSF notes offered as part of the various rounds of Greek banks recapitalization exercises.
  • NFC and households have substantial claims in the form of deposits and banknotes, more than €52bn in total.
  • The general government holds no assets while its foreign exchange reserves are very low and mostly in the form of monetary gold. Although Greece does have a claim on the ECB reserves this would not change the picture in a serious way.

On the liability side:

  • The general government is the largest debtor with €28bn in bonds and €236bn in loan liabilities. Yet most of the bonds and almost all of the loans are long-term in nature.
  • BoG is the second largest debtor with almost €93bn in liabilities which consist of Target2 and extra banknotes.
  • MFIs have a large stock of liabilities in the form of deposits (which are usually a proxy for repo trades).
  • NFC and households have a very small stock of liabilities in the form of bonds and loans (a bit over €10bn).

Overall one observes that:

  • The largest part of the Greek NIIP is attributed to the Greek government with over €260bn in debt.
  • Taking into account the bonds held as part of QE, BoG net foreign liabilities drop to €47bn.Using the most recent available data (January BoG monthly statement) this figure further decreases to a bit over €38bn or close to 20% of GDP.
  • NFC and households hold a strong positive net claim from the RoW equal to almost €44bn. This most certainly masks firm-specific risks and mismatches but overall, the Greek non-bank private sector will improve its net position in the case of a currency depreciation (following a Grexit).
  • Using only deposits figures, Greek MFIs have a net liability close to €28bn. Since a large part of their liabilities will be under foreign (instead of domestic) law this creates a serious risk of missing debt payments or being unable to roll-over short-term repos and other obligations. Given that the Greek banking system will be the one intermediating in all of the private sector’s foreign transactions this net liability position can create rather difficult scenarios.

I will also use BoG MFI balance sheet data to take a closer look at Greek bank foreign risks:

Greek banks foreign risk Jan-2017

It is clear that things are a bit complicated, especially since Greek banks have a large stock of intra-group transactions with group members in other (Balkan?) countries. Nevertheless, after correcting for such transactions one observes that they owe €13.6bn in net liabilities to other MFIs (€18.5bn gross) and another €8.6bn in foreign deposits. The main source of risk will mostly be the first item which is usually secured by a standard contract (master agreements) and is under foreign law.Missing a payment on these liabilities will create serious problems for the corresponding bank and its ability to continue transacting in international markets. Obviously a risk assessment would be made easier if the maturity profile of these liabilities (and assets) was known.

Regarding the BoG liability position I believe that in the event of a Grexit, securities held for monetary purposes will be used to settle the largest part of Eurosystem claims while the remaining net position will be settled with some form of Greek government long-term securities (probably floating rate notes paying Euribor).

In summary, I generally agree with Kostas Lapavitsas who believes that a Grexit scenario will necessitate increasing Greek government foreign reserves to at least €12-15bn. The main immediate sources of risks are the short-term debt of the Greek government and Greek banks. The first consist mainly of liabilities towards the IMF (since SMP Greek bonds are under Greek law and would be converted to the new currency) while the second require a thorough risk analysis. A Grexit would be extremely difficult if Greece only held €7bn in foreign exchange reserves (with 2/3 being monetary gold) since a bank debt payment failure would create serious disruptions in the country’s international transactions.

Σε σημερινό άρθρο του ftalphaville παρουσιάζονται ορισμένα πολύ ενδιαφέροντα διαγράμματα του Richard Koo (οικονομολόγος της Nomura ο οποίος εισήγαγε τον όρο balance sheet recession εξηγώντας τη ‘χαμένη δεκαετία’ της Ιαπωνίας) για την οικονομία της Ιαπωνίας και των ΗΠΑ και την καθαρή θέση των (μη χρηματοπιστωτικών) επιχειρήσεων και νοικοκυριών. Από αυτά γίνεται σαφές ότι συνολικά οι δύο αυτοί τομείς (οι οποίοι αντιπροσωπεύουν πολύ μεγάλο τμήμα του εγχώριου ιδιωτικού τομέα) έχουν θετικό υπόλοιπο 9,5% του ΑΕΠ στην Ιαπωνία και 5,8% στις ΗΠΑ. Στην Ιαπωνία αυτό συμβαίνει με συσσώρευση ενεργητικού και μείωση των υποχρεώσεων (δανεισμού), ενώ στις ΗΠΑ τα νοικοκυριά ακολουθούν και αυτά την ίδια πολιτική, με τις επιχειρήσεις να έχουν θετικό υπόλοιπο αλλά με μερική επέκταση του δανεισμού τους (κάτι το οποίο οφείλεται στην καλύτερη οικονομική θέση τους, καθώς τα κέρδη έχουν ανακτήσει την ανοδική τους πορεία, τη στιγμή που οι πραγματικοί μισθοί έχουν παραμείνει στο μεγαλύτερο βαθμό στάσιμοι).

Στα παραπάνω θα πρέπει να προσθέσουμε και τη θέση του εξωτερικού τομέα, η οποία είναι αρνητική στην περίπτωση της Ιαπωνίας (η χώρα συσσωρεύει πλούτο σε ξένο νόμισμα) σε μέγεθος ίσο με 3,6% του ΑΕΠ (αν και τελευταία έχει αναστραφεί) και θετική στις ΗΠΑ (εξωτερικό έλλειμμα) σε ποσοστό 3,2% του ΑΕΠ. Ένα μέρος δηλαδή της αποταμίευσης στην Ιαπωνία γίνεται σε ξένο νόμισμα ενώ το αντίθετο συμβαίνει στις ΗΠΑ (συσσωρεύουν υποχρεώσεις σε δολάρια προς τον υπόλοιπο κόσμο).

Ο Κοο χρησιμοποιεί αυτά τα μεγέθη για να καταδείξει την αναγκαιότητα των δημοσίων ελλειμμάτων (καθώς εξ’ ορισμού η αποταμίευση είναι διαρροή από τη ζήτηση στην οικονομία) σε μία επανάληψη των sectoral balances, καθώς και για να εξηγήσει την ευκολία με την οποία η Ιαπωνία συνεχίζει να ‘χρηματοδοτεί τα δημόσια ελλείμματα. Παρότι η λογική αυτή είναι ανάποδη (στην πραγματικότητα τα δημόσια ελλείμματα ‘επιτρέπουν’ την αποταμίευση), σε ένα γενικό πλαίσιο είναι αρκετά απλουστευτική και επαρκής ώστε να κάνει σαφές το γεγονός ότι, ακόμα και σε μία θεώρηση τύπου loanable funds market, η χρηματοδότηση των κρατικών ελλειμμάτων της Ιαπωνίας δεν έχει προβλήματα ζήτησης, ιδιαίτερα καθώς δεν υπάρχουν ιδιαίτερα πολλές εναλλακτικές ενεργητικού χαμηλού ρίσκου (όπως έχει δείξει η υπερ-20ετής κρίση τιμών ενεργητικού).

* Δυστυχώς δεν έχω καταφέρει να βρώ το αρχικό paper του Koo. Αν κάποιος το έχει υπόψη του θα εκτιμούσα την ενημέρωση.

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Kostas Kalevras

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