The National Bank of Greece attracted demand of €1.9bn for its €750m three year conditional pass through covered bond allowing the deal to be priced well inside initial guidance of 3.25% at 2.90%, some 80bp tighter than where government bonds trade.
The transaction shows other Greek issuers, such as Alpha Bank or Eurobank, that competitive funding from the market is within reach. In contrast to the Greek banks’ last foray into the capital markets in 2014, the bond offering has appealed to investors who are likely to be interested in buying higher yielding debt further down the capital structure.
But as good as that may sound, the finances of the Greek government remain in trouble and without debt relief, the economy is going will continue to struggle, dragging on any potential recovery for Greek banks.
The IMF’s €1.6bn precautionary stand-by agreement made in July came with a warning from agency’s managing director, Christine Lagarde, who said that “Greece will not be able to restore debt sustainability and needs further debt relief from its European partners”.
Greece is responsible for servicing €315bn of rescheduled debt, equating to around 180% of GDP.
The assumption is that high levels of growth will boost tax revenues leading to debt reduction. But without a fully functioning banking sector able to extend credit, there is no realistic hope that high growth will ignite.
Europe’s creditor nations are likely to remain hostile to the sort of courageous debt relief programme that can effectively put the Greek economy and its banks on a stable path. And without agreement from such countries, the IMF is not likely to offer any further financial help to Greece when its existing rescue package ends in August 2018.
Under such circumstances, Greek government bond yields could ratchet sharply higher. That will feed through to the broader economy, damaging bank balance sheets already in precarious conditions. NBG, the best performing of the major banks, has a non-performing loan ratio of 34%.
NBG should be congratulated on its covered bond return, but one swallow does not make a summer, and one successful covered bond deal doesn't restore market access, or the broader Greek economy. The country still needs debt relief to put a real end to its years of crisis.