Battling Bad Loans to Help Finance the Future

Vassilios Psaltis, CEO of Alpha Bank, says a comprehensive transformation that is underway will help Alpha to clean up its balance sheet, dramatically reduce NPLs, and allow it to “become a bank once again”, reasserting its leading role as a financier of households, businesses, and the Greek economy.

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GIG: Greece’s economy is on a growth trajectory. But at the same time there are uncertainties at a global level weighing on GDP. What does this mean for Greece’s banking sector? What measures do you expect at a governmental level to further boost economic growth?

Vassilios Psaltis CEO of Alpha Bank

Psaltis: Retaining firm economic growth remains a challenge for Greece amid escalating external risks and uncertainties. The environment abroad is more volatile – and certainly less favourable – in relation to previous years, as we can observe a slowdown of economic growth in the eurozone, escalating trade protectionism, and geopolitical tensions in our wider region.

Nevertheless, under the current positive outlook of the Greek economy, the external risks, per se, are not expected to be harmful, as the new Greek government expressed early on its intention to implement a pro-growth fiscal policy mix. This fiscal policy emphasises on less distortionary taxation, as well as the acceleration of privatisations and reforms, facilitating the projects undertaken by the private sector.

There are still challenges that need to be addressed, and resolved, in order to enhance productivity, improve competitiveness, and further boost economic growth. Undoubtedly, a sustainable economic recovery is significantly linked with the ability of the banking sector to finance the economy. But it is also related to the reduction of heavy bureaucracy, especially in the public sector, the simplification of excessive regulation, and the elimination of delays in the administration of justice in courts.

We should not forget, though, the burdens we inherited from the prolonged financial crisis, such as the significant investment gap, consequent low productivity, high public debt, and a large percentage of NPLs. Also, there is the demographic problem, which was aggravated by the brain drain.

In order to overcome the crisis, we must be determined but, at the same time, honest: the thousands of Greeks who fled the country did so because, on the one hand, they couldn’t find employment during the crisis and, on the other hand, because of the lack of meritocracy. My main goal is for Alpha Bank to become a point of attraction for highly qualified people and a destination for young skilled professionals that were forced to move abroad due to the financial crisis in Greece.

GIG: Alpha Bank is picking up efforts to clean up its balance sheet from bad loans. Can you tell us what your action plan here involves? On an operational level, what is Alpha Bank doing to reduce NPEs and prevent new bad loans from emerging?

Vassilios Psaltis CEO of Alpha Bank

Psaltis: We have embarked on a comprehensive transformation plan, designed to drastically clean up our balance sheet through a large-scale NPE securitisation within 2020, with a total on-balance sheet gross book value of up to €12 billion. Our plan, under the codename Galaxy, reflects Alpha Bank’s commitment to leave the problems of the crisis behind and “become a bank once again,” reasserting its leading role as a financier of households, businesses, and the Greek economy. This is not just the most significant securitisation of NPEs in Greece, but the third largest in Europe. It is a transaction that allows us to reduce the NPE rate from 44% in 2019 to below 20% in 2020 and eventually to a single-digit rate in 2022. The percentage of NPLs in default, for more than 90 days, will fall below 5% in 2022.

We are decisively proceeding to a clean-up of our balance sheet in order to devote all our energy to our core business, which is banking and financing the economy. Apart from our expertise and capital strength, there are three crucial conditions that allow us to aim high: supervisory authorities are urging similar initiatives; a dramatic improvement in macroeconomic figures that brings our country to the very centre of investment interest, has been recorded; and thirdly, Hercules, the Greek asset protection scheme, has been activated.

As an integral part of our strategy to further reduce our NPEs and restrain new defaults, we have developed a series of strategic initiatives to transform our servicing platform by focusing on operational efficiency, portfolio monitoring, and the deployment of existing resources. To this end, we redesigned the bank’s processes and systems by creating new automated flows and streamlined execution based on specialised tools in order to deliver a customised value proposition to individual needs and, in essence, proactively manage any potential inflows.

Additionally, we introduced new forecasting methodologies in order to closely monitor internal performance and ensure target achievement. Our redesigned strategy is already producing tangible results by recording a €0.9 billion organic reduction of NPEs in 2019.

GIG: One of the criticisms aimed at banks is that new loans provision to small businesses, the backbone of the Greek economy, remains minimal. How do you respond to this?

Vassilios Psaltis CEO of Alpha Bank

Psaltis: I strongly believe that the time has come to make up the ground lost during the years of the crisis. As the international investment community is regaining its trust in the country’s prospects we, as Alpha Bank, are at the forefront of this national effort.

Along with the recovery of the Greek economy, we intend to create further value through our customer-centric growth strategy, aiming to disburse €11 billion of new loans for the period 2020-2022. With a strong focus on supporting sustainable development, innovation, and entrepreneurship, our strategy within the corporate and SME space is to extend credit primarily to sectors with strong multiplier effects, both economically and socially. In small businesses, we aspire to provide financing of approximately around €800 million by the end 2022, through a premium service model of gold small business relationship managers, and by targeting underpenetrated segments. On an annual basis, this is more than 5-fold the credit we provided in 2018 to small businesses as we expect healthy credit demand to pick up.

Let me just add that the European Bank for Reconstruction and Development recognised Alpha Bank as the Most Active Issuing Bank in 2018 in Greece in recognition, for a second consecutive year, of the bank’s continued commitment to promoting innovative initiatives and investments.

GIG: Technology is fast changing all industries. What is Alpha Bank doing to prepare for the digital era? How are you innovating?

Vassilios Psaltis CEO of Alpha Bank

Psaltis: Indeed, the banking sector is going through an intense transformation process, given the emergence of profound technological changes, and advancements that present challenges as well as opportunities. One of the key challenges for banks, in the digital era, is the rise of the so-called non-traditional players such as fintechs and digital banks, offering a completely new customer experience level; digital end-to-end, from onboarding to everyday use; as well as sophisticated customer engagement approaches. In addition, big tech companies show a clear interest towards the introduction of banking services.

In this regard, we have been undertaking a detailed digital transformation programme since 2017 where customer experience has a central role. We are redesigning our customer journeys as we target a seamless, omni-channel experience for our customers. Currently, 85% of all transactions take place outside the branch through digital channels. Indicatively, teller transactions have already decreased by 50% in the last two years, and mobile users increased by more than 50% on an annual basis.

GIG: You have been with the bank for many years, but only in 2019 took on the position of CEO. What is your top priority during this new phase for the bank?

Vassilios Psaltis CEO of Alpha Bank

Psaltis: 2019 was a defining year for Alpha Bank. We worked systematically on a comprehensive plan that will make our bank a key driver of progress. Our recently announced strategy update for the period 2020-2022 envisages a comprehensive programme of change that will enable us to effectively create value for our shareholders, our customers, and, of course, our employees.

We launched Galaxy to decisively resolve the problem of NPLs. At the same time, we presented a bold proposal to transform our bank by simplifying complex processes and procedures, accelerating our already successful Digital Transformation programme and enhancing our customer-centric approach.

Now, it is necessary to move swiftly, on the one hand implementing the major Galaxy transaction, and on the other hand decisively promoting the transformation of our bank. The organisational redesign, the upgrade of the assessment process, the clear measurement of efficiency and talent management are, among other things, decisive steps on our transformational journey. For us, it is very important to create a corporate culture that is based on meritocracy, performance, transparency, and trust.

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