Challenges and potential for banks in the region
Wim Mijs, chief executive officer of the European Banking Federation, was in Greece this week to take part in the Balkans and Black Sea Cooperation Forum in Serres. The federation unites 32 national banking associations in Europe, representing some 4,500 banks. Mijs, who moderated a panel on the digital economy and innovation, and spoke on a panel on women in leadership, took time to talk to Kathimerini English Edition. The discussion ranged from the potential and challenges for banks in Greece and the broader region to how banking across Europe was affected by the crisis that broke out in 2008 and the measures that have been taken to prevent a repeat of this.
On the issue of nonperforming loans, Mijs commented: “There is no doubt that Europe needs to somehow deal with this portfolio of NPLs. Not only in Greece but also in Italy and Portugal and other countries.” He added, “The good thing is that it is now very much on the European agenda and needs to be solved in the coming years.”
Regarding banking union, he said: “If you have a monetary union you need to have a banking union. And this is for me a big lesson of the crisis, that you need to have really good supervision. But with supervision you need to have a single rule book.”
On the possible effects of Brexit, Mijs said, “London is the global financial center for Europe and we now have the country that has that global financial center move away from its own market.” He added: “In my view it will not be a total move of the financial center overnight, but there will no doubt be some cases. However, there is no doubt that it will have an impact in the financial sector.”
In the Balkans and the Black Sea region, do you see much potential for banks to grow?
Potentially yes. Of course in Greece there is a special situation, but if you look broader to the Balkans and the Black Sea, there is potential. And as is usual with banks, potential comes with economic growth; but if you don’t have good banks that are ready to finance the economy then you won’t have growth. It’s a little bit of a balancing act, but as you see the region developing there is certainly potential for banks also to grow.
What are the greatest dangers that the banks that banks face as they grow?
We have the lessons of the crisis. Since then many regulations have been put in place dealing with that. That is, dealing with more stable banks and stricter on capital requirements and structure of the bank. That needs to be done but it comes at a higher cost. And of course it’s a necessary cost but it makes it sometimes harder for smaller banks to grow. Then there is the digital transformation. In my view, customers’ habits are changing so fast that if you don’t adapt as a bank you won’t survive. I don’t know when you were last in a bank but for me it has been years because if I can’t do it on my phone I don’t want it. The third is cyber security. We saw the cyber attacks. We had the famous attack in February 2016 in Bangladesh which was very big. But we also had the recent attack, the WannaCry worm, which eventually spread out to many, many countries and it showed you how incredibly sensitive a big IT infrastructure is to cyber security. So there you have your three biggest risks.
Do you think banks in the Balkans and Black Sea region are adequately armed against the danger of cyber crime or are all banks in the world in the same boat?
In the global infrastructure of which the banks in the Balkans and the Black Sea region are part, they are as vulnerable as all the banks, and many banks are connected with or owned by foreign banks, so there is a clear, similar level of protection. And then the other thing is that there may be even an advantage. Let me explain that: You see in Western Europe there are many legacy systems and here in the Balkan and Black Sea regions there are less legacy systems, which gives them the opportunity to build much more modern IT systems and these are less vulnerable.
That’s interesting. Do you think the banks in the region are doing enough to meet the challenge of digitalization?
My feeling is that there is the potential to make a leap forward. You see that many Western European banks with subsidiaries in the Balkan and Black Sea region use this because there is no legacy program as a test bed for innovative banking. So that is an advantage. On the other hand, what you do see, and this was said to me by a banker from this region, is that clients are slower to adapt to new ways of banking than the numbers they see now in Western Europe. The advantage is that they can move faster because they don’t have to build on old systems. The disadvantage is that the client population has been less demanding of services than it has been in Western Europe. But they certainly have the ability.
Greek banks were caught up in a major crisis that – unlike in other eurozone members that needed bailouts – was not of their making. Do you think the crisis that emerged in Greece was handled well (by the Greek authorities and by the European mechanisms) in the beginning? Was it handled better as time went on? Can similar damage to banks be prevented in other countries with the regulations and procedures now in place?
That is a long and difficult question with many aspects. The way I see it, it is very easy after a crisis to look back and see what should have been done and it is quite different if you are are in the middle of it. I think that both Greek and European authorities did their best but when the crisis happened they did not have the instruments that they needed to stop the crisis going further. Since that we have learned that the tie between the banking system and the sovereign is a serious part of the problem, because indeed if the banks go bankrupt the sovereign can be damaged. This is what happened in 2008 in many Western European countries, when the banks were bailed out. Or if the sovereign is in trouble, like we saw in Greece in 2012, then the banking system can be damaged. So the plan that was put in place on European resolution mechanism is aimed squarely at cutting the tie between the sovereign and the bank. Have we done enough? I think if you look at all the pieces of the puzzle that have now been put in place, on paper we have done it. Now we are executing it and banks have much higher capital levels, we’ve done stress testing, I think that the banking union with ECB supervision is a big step forward. You have macro-prudential supervision to see bubbles much earlier than in the past. Banks now have resolution plans. And finally, a resolution fund is being built. All these pieces are on the table: On paper they are ready; the implementation is difficult and it will take some time. But when the system is in place, in my view, there will be much better instruments for both the Greek but especially the European authorities to battle a crisis than in the past.
The big problem that the Greek banks face right now is that of nonperforming loans. Do you see that the measures that have been taken are practically a way forward or do you still see dangers in the course?
Nonperforming loans have now been put on the agenda, among others, by Andrea Enria, the chairman of the European Banking Authority, and that is of course good. Because there is no doubt that Europe needs to somehow deal with this portfolio of NPLs. Not only in Greece but also in Italy and Portugal and other countries. So the call by Andrea Enria for political attention by political leaders for the way forward is important. And in my view that has led to a number of moves, new thoughts, I believe there are several think tanks, both inside and outside of governments, that are now looking at possible approaches to reduce the NPL loads. I don’t have a direct solution for you, I am always a little bit wary of collective solutions. In my view, it is clear that you have to pay attention but you need to unravel these NPLs almost one by one and that is going to be a difficult route. In my view, the good thing is that it is now very much on the European agenda and needs to be solved in the coming years.
Do you feel that European banks need to cooperate more closely or do you feel that the European Banking Federation is doing enough?
That is a beautiful question to ask the CEO of the EBF. You may guess at once what my answer is! I’ll give you a very clear answer. Banks can cooperate in the EBF if the EBF is adding the value. I have now been two-and-a-half years in the job and I believe that every age needs a new federation, so the post-crisis EBF should do a different job from the pre-crisis EBF because the circumstances are different. In this day and age, the EBF needs to add value to the banking sector. We are specialists in the institutional and regulatory environment in Europe. Regulatory risk is a matter of survival for all banks. It is a matter that is dealt with at the highest board levels. So only if the EBF can add value to ensure that we have a balanced and well-prepared regulatory environment will it add value. And if we don’t do our job, well, then people will start building structures around us. But I am extremely ambitious to ensure that I do my job and that the EBF is a trusted partner.
Do you feel that the European Banking Authority is making a decisive contribution toward helping the European Union integrate more adequately? Does the continent have the tools to support banking activity and growth?
That’s an interesting question and I’m a big believer in the banking union. I believe that with the euro – if you have a monetary union you need to have a banking union. And this is for me a big lesson of the crisis, that you need to have really good supervision. But with supervision you need to have a single rule book. Because if you ask anybody in the ECB they will tell you that it has been relatively difficult for them (even though they do an amazing job – they set up only a few years ago and I think they are quite good). You can see that still they have many different regimes. That means that the role of EBA to create a single rule book and to integrate further is essential. They are doing their best. It is extremely necessary. What is worrying me a little bit is that if you look at the level of detail, going into levels 2 and 3, the technical levels in which EBA is active, then it almost becomes unmanageable. They are certainly doing a good job. I believe they can with a little bit more budget and a little bit more people, because they do a lot of work with very few people. I am quite a supporter of them.
I don’t know if this a question that you can help me with, but do you think that the great differences in interest rates from one eurozone country to the next benefit or distort growth across the bloc?
Honestly, I am always a little bit careful talking about monetary policy because indeed I don’t have the numbers and the overview at hand and the ECB does have them. But there are two things that are clear: You see that the ECB is in a very active monetary policy, which is carried by the ECB board. I can’t tell you if it has worked or not. I do find some logic in the eurozone and we have to realize that before the euro the euro countries had very different interest rates, then when the euro started suddenly everyone had the same. That was how financial markets looked at it. And this has proven to be a fiction. So I think that the research behind the interest rates is now more rational. But I find it very difficult to comment on the monetary policy itself because I don’t have even a tenth of the data and knowledge that the ECB has available.
Do you think Brexit will alter the geography and the potential of the European banking sector?
Brexit is a choice from a referendum and it is a discussion between European leaders. Though I follow this with interest, if you ask me in all honesty, it is impossible that there is no effect on the banking system. Why do I say that? Because London is the global financial center for Europe and we now have the country that has that global financial center move away from its own market. You will see reshuffles, as we have seen in the papers. Now banks have contingency plans on where they want to go, what part of their business will go. I guess you will see clearing and settlement business move to the continent and maybe some other services. But in my view it will not be a total move of the financial center overnight, but there will no doubt be some cases. However, there is no doubt that it will have an impact in the financial sector. We are monitoring this very, very closely.
About the Balkan and Black Sea Cooperation Forum: Do you think that there are enough initiatives in the area that can have an impact on the region, that can help development?
This is exactly why I am honored to be part of this initiative. Because indeed most of my work is in Brussels and Frankfurt, and I spend most of my time in Brussels, Frankfurt, London, Paris, Amsterdam, all these places. But I do believe this region, for a number of reasons, can grow. Part of it is the ambition. There are many young people here – and I am talking not only about Greece, to which I’m slightly biased. I am talking about the larger Balkans and Black Sea region – who are well trained, with a high level of ambition. Many engineers. Good engineers. Not only in Greece but also in Bulgaria, Romania who really want to do something. So there is potential in this region. And it is important that we organize these kind of networks and cooperation meetings and conferences because this is where it gets the attention of possible investors, it creates networks, it creates shared knowledge and with it, I hope that it brings growth to this region. This is very important. I congratulate the organizers, the people who made the concept. I am happy to take part in it because I very much believe that there is potential in the region.
