Eurobank, Greece’s largest lender by market value, has announced a decline in its profit for the first nine months of the year. This decrease in earnings is primarily attributed to increased provisions for bad loans and higher operating expenses.
For the January-to-September period, Eurobank reported net earnings of 980 million euros ($1.05 billion), signifying an 11.4% decrease compared to the same period in the previous year. This decline in profit is indicative of the challenges facing the banking sector, which has been grappling with the legacy of Greece’s decade-long financial crisis.
In the third quarter, the bank allocated 90 million euros for provisions to cover non-performing loans. This amount is notably higher than the 73 million euros set aside for the same purpose in the corresponding quarter of the previous year. Such provisions are a necessary financial precaution to account for the potential losses stemming from loans that may not be repaid in full.
It’s worth noting that Greek banks have made significant progress in reducing their bad loan ratios. In the first half of 2023, they successfully reduced the ratio to below 8%, marking a substantial improvement from the 45% ratio observed in 2016. Despite this progress, Greek banks still have higher bad loan ratios compared to their counterparts in the euro zone. This discrepancy is a result of the prolonged financial crisis that Greece endured over the past decade.
Eurobank, in particular, has been working diligently to lower its non-performing loan exposure ratio (NPE). As of the end of September, this ratio had fallen to 4.9% of its total loan portfolio, down from 5.6% in the same period the previous year. This demonstrates the bank’s commitment to improving the quality of its loan portfolio and minimizing risk.
Notably, Eurobank recently became the first Greek lender to repurchase a 1.4% stake from the state-controlled bank bailout fund, Hellenic Financial Stability Fund (HFSF). This share buyback is a significant step towards reducing the state’s participation in the bank’s share capital. CEO Fokion Karavias has indicated that this buyback will be followed by a cash dividend payment from the 2023 financial results in the next year. This is a positive development for the bank and its shareholders, as it signifies a return to more stable financial footing.
The Greek banking sector has undergone a challenging journey in recent years, marked by a return to profitability after enduring the financial turmoil triggered by the Greek debt crisis in 2010. The hope among Greek banks is to resume paying dividends in 2024, a significant milestone that reflects their improved financial health and the gradual recovery of the Greek economy.
In conclusion, Eurobank’s lower profit for the first nine months of the year highlights the ongoing challenges faced by Greek banks as they work to overcome the legacy of the financial crisis. Provisions for bad loans and operating expenses have impacted their profitability, but the progress made in reducing bad loan ratios is a positive sign. The bank’s efforts to repurchase shares from state-controlled entities and the potential resumption of dividend payments in the near future underscore the industry’s resilience and its journey towards financial stability and growth.