How Greek treasurers adapted their strategies for survival

In June 2015, Greece imposed capital controls. Christos Baltoumas explains how he and fellow treasurers worked to withstand the impacts

In June 2015, a new reality broke in Greece. Ongoing negotiations between the Greek government and the so-called troika of the International Monetary Fund, the European Central Bank and the EU had reached a stalemate.

As a result, the Greek government decided to hold a referendum to determine the public view on whether Greece should agree or reject the austerity package proposed. Mass withdrawals from cash machines and rumours about the prospect of imminent bank failures ensued, resulting in the closure of all bank branches and the imposition of capital controls within hours.

It is true to say that treasurers and corporates were preparing for this scenario for many months.

In fact, for most of us it was not a matter of if, but when.

From 2008 onwards, treasurers in Greece have been forced to work under hostile conditions. The country has lost a quarter of its GDP, while public debt stands at more than €320bn. The debt-to-GDP ratio has gone from 110% in 2008 to more than 185% in 2016. Unemployment has soared and consumption hits new lows every year.

Non-performing loans exceed €100bn, while deposits in Greek banks reached around €120bn in February 2017, the lowest level in more than 10 years. Funding to corporates and individuals dried up long ago, further hurting investment and consumption.

It was against this backdrop in early 2015 that treasurers and corporates in Greece were forced to rethink strategy and treasury policies. The fear of bank closures and capital controls, the talk of Grexit and uncertainty around the future of Greece’s currency were issues that we had to address quickly and effectively.

According to our analysis, we had to address three key areas:

1. Trapped or devalued cash

First, we had to closely monitor our liquidity and manage our cash effectively to avoid seeing our cash either trapped in Greece or devalued in the event of a Grexit.

Our short-term goal was to keep our bank balances as close to zero as possible. We updated cash flows daily and evaluated projections again and again. Our aim was to be as accurate as possible.

There were other pressures. We wanted to ensure accuracy with regards to payments from customers. On the other hand, we had to be prepared to delay payments to suppliers. Timing was key, since it was also imperative we avoid damaging relationships with key suppliers.

In the medium term, we had to be prepared to move any excess cash outside Greece – a strategy that in itself brought many questions. Would we choose a Greek bank outside Greece? Greek banks have a strong presence in the Balkans and most have affiliates in London and other financial centres.

Would it be safer to go for a foreign bank, perhaps in Germany or in the UK, or in a eurozone country or in another jurisdiction, such as Switzerland? Would a current account or a money market investment serve our needs more appropriately?

We had to decide and act quickly, since establishing new relationships with foreign banks requires time and money – and we had neither to spare. What is more, we had to be discreet and protect existing relationships.

2. Debt considerations

A second area that we had to keep an eye on was debt facilities. Different scenarios had to be evaluated with regards to existing agreements. In the event of a Grexit, what would happen to current euro facilities? Would they remain in euros or would they be translated into the new currency?

This was a grey area, and legal departments in many companies worked overtime without reaching a solid conclusion. The prospect of servicing loans denominated in euros from assets held in a weaker currency posed a real threat to the very existence of many corporates.

Financial covenants were an additional challenge. All covenants had to be meticulously overseen, since the deterioration of the economic situation had had a big impact on the financial results of all companies.

On top of that, we had to consider the availability of credit to refinance existing loans and, more importantly, for evaluating future projects and investments. Projects were delayed or abandoned altogether, since banks in Greece had little or no appetite for new loans.

As for foreign banks, there was no question of evaluating any new investment proposals; just mentioning Greece was enough to elicit a rejection.

3. Continuity

Finally, we had to consider contingencies for our operations. We had to establish how we would continue to work in the event of an interruption to Greece’s banking systems. Electronic payments together with bank accounts outside Greece would be very important in that scenario.

With that in mind, we had to establish relationships with new banks outside Greece – but we also had to test them. Despite the Single Euro Payments Area, we found that a wire transfer of €1,000 from, let’s say, Greece to Luxembourg does not cost the same in money or time as a €1,000 transfer from Luxembourg to Greece.

Even banks in the same country sometimes had different pricing lists with regards to the same wire transfer. So the pricing policy of each bank had to be considered.

Furthermore, we had to evaluate the possibility of serious unrest in the country in the event of a Grexit. Within our business, those plans included relocation and a set of specific instructions for our offices outside Greece in case there was a loss of communication for a long period. We had to be prepared to resume operations promptly and productively after serious unrest.

Now, almost two years later, and with a lot of questions around national debt levels and Grexit still unanswered, we are prepared and more confident about the future. We have tested relationships with foreign banks and we have minimised our exposure to the Greek banking system.

At the same time, we deeply value our long-standing cooperation with our banking partners in Greece and we stand ready to extend it in the future.

We have learned to be prepared for even the most extreme scenarios, and we continue to update and test our risk management policy. We know now that, no matter how well prepared you might be, there will always be a factor that was not properly evaluated.

In all contingency planning, you must leave yourself room to manoeuvre. Reality never ceases to amaze us; we have faced risks and challenges that we never imagined. During the first days after capital controls were imposed, most Greeks were afraid that banks would collapse and they would lose their deposits.

Many consumers responded by buying expensive TV sets or mobile phones. Many corporates with large amounts of cash trapped in the Greek banking system started to pay all obligations towards the state or to suppliers in fear of a possible haircut.

Even those treasurers who had done their homework and shipped cash out of the Greek banking system ended up with large amounts of cash in bank accounts because all their debtors started to pay past debts.

In this context, I must stress the importance of being able to talk to fellow treasurers and professionals in other countries. Their experience and contacts provided valuable help. Being a member of an established association like the ACT gives that opportunity to meet and talk to successful and experienced professionals from around the world – colleagues able to offer valuable insight.

In certain situations, that opportunity to turn to an international network can provide a lifeline.

 We had to evaluate the possibility of serious unrest in the country in the event of a Grexit 

About the author

Christos Baltoumas is a treasurer in real estate investment company Bluehouse Capital

Christos wrote about Greek finance before the imposition of capital controls in a June 2015 piece for The Treasurer. To read that earlier article, click here.

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This article was taken from the Jul/Aug 2017 issue of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership

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