Despite being billions of euros in debt, the Greek Attica Bank has been offering generous credit terms for years. Critics are pointing at a conflict of interest involving the government.
The fifth largest bank in Greece, Attica Bank, recently made headlines for its involvement with the auction process for awarding four national TV broadcasting licences. The highest bidder was Ioannis Kalogritsas, a member of a business family, who was only allowed to take part because the Attica Bank was his financial guarantor. The construction giant is alleged to have close contacts in the governing left-wing party Syriza.
After Kalogritsas got hold of a television licence for a staggering 52.6 million euros (about 59 million dollars), Greek media ran reports on the striking number of government contracts with his construction company in recent times. There also have been reports about the easy credit he obtained from Attica Bank, whose majority shareholder is the main engineer's pension fund (TSMEDE). After coming under pressure, Kalogritsas withdrew from the TV business. But questions are mounting. And Attica Bank is becoming an increasingly political issue.
'A touch of nepotism'
Opposition spokesman Jorgos Koumoutsakos has described the Attica Bank's extension of credit to political friends as showing "a touch of nepotism." Left-wing Prime Minister Alexis Tsipras has gone on the counteroffensive, accusing former conservative and socialist coalition partners of also receiving credit from the much-maligned bank.
Miltos Kyrkos, a social-democratic EU parliamentarian, told DW: "The government wanted to create a kind of private bank, to distribute favors. This is why all of the state-owned companies, as well as the engineer's pension fund, have transferred part of their savings to the Attica Bank during the previous months." This meant that they practically financed the Bank's capital increase. Kyrkos alleged that "these funds then were used to provide special credit conditions." According to him, credit was given to people close to the government, who would not have received it under normal conditions and who would not be repaying a significant part of it. The share of "non-performing loans," - loans that have not been serviced at least once - is at a record level of 57 percent at the Attica Bank. So-called "bad loans" - which are loans that have not been serviced for the last three months - are estimated at 40 percent or more.
According to the Greek newspaper Kathimerini, since the beginning of 2015 the bank has provided "certain" customers with new loans of more than 400 million euros - despite deposits sinking to 1.2 billion euros due to the economic crisis in Greece.
Stournaras, the head of the central bank of Greece, is seen as a thorn in the side of the current government
Previous government also responsible
However, there is reason to believe that the situation had already gone off the rails before the country's shift to the left in January 2015. According to Kathimerini, the bank's administrative costs quadrupled between 1999 and 2013. The newspaper has reported that a leading member of the finance department had to step down two years ago for falsifying his degree.
Further and more serious criticism is pointed out by an audit report provided by the Greek central bank on behalf of the European Central Bank. This was done as part of its supervisory role to monitor the stability of banks in member states. The report attests that Attica Bank has a capital shortfall of 70 million euros. A banking analyst, who would prefer to remain anonymous, recently told DW that interest was shown in the Attica Bank by an investor who then declared himself not prepared to get involved if the bad loans were not dealt with.
Dispute with the Greek central bank
The small Attica Bank is not considered to be systemically relevant enough to fall under the direct supervision of the European Central Bank (ECB). EU parliamentarian Kyrkos believes that the government in Athens wanted it this way, so that it could do as it pleased. But non-systemic financial institutions are still subject to control by the respective central bank. Which may lead to the question whether the Greek central bank has played by the rules.
"If the Attica Bank has not done a good job, then the central bank hasn't done a good job either and also should be monitored," said the Greek Minister of Infrastructure, Christos Spirtzis.
Jannis Stournaras, the head of the central bank of Greece, was finance minister under the conservative-led former government. He is seen as a thorn in the side of the current government in Athens. When Stournaras rejected new left-wing party candidates for the executive committee of the Attica Bank in mid-September on the basis that they lacked qualifications, anticorruption investigators raided his wife's advertising agency to verify possible irregularities in relation to an earlier campaign run by the ministry of health.
Perhaps this was only a coincidence. In any case, 48 hours later Tsipras and Stournaras met for discussions and agreed on a new executive committee for the bank, whom market experts have described as competent.
Those criticized have promised improvement
Last week, the new executive committee of the Attica Bank for the first time published a response to the criticism that has been aimed at it. The new leadership promised improvement and announced a new business plan - without offering concrete details. However, the committee indicated that it had already taken measures to minimize financial risks.