With strong trade and banking links with Greece, Bulgaria and its Balkan neighbors remain highly vulnerable to the threat of Greek financial collapse, even though dependence is lower than it was a few years ago.
While Athens seems for now to have secured an extension to its bailout, the danger of an eventual euro exit still exists, with the risk that Greek banks, facing a run on deposits, will be forced to cut off funding to overseas subsidiaries, Reuters reported.
These subsidiaries are concentrated in Balkan states, where Greek banks’ claims on Bulgaria amount to almost a fifth of the country’s annual gross domestic product (GDP), according to data on cross-border lending from the Bank of International Settlements.
Greek banks’ assets in Albania, Macedonia and Serbia are equivalent to around 18, 16 and 12 percent of GDP respectively, while Bulgaria sends around 7 percent of its exports to Greece.
“You have two elements. First, what effect does a run on deposits within Greece have on deposit holders in other countries in those banks?” said Simon Quijano-Evans, head of emerging markets at Commerzbank.
Greek depositors last weekend withdrew 1 billion euros as fears mounted of capital controls should the government fail to reach a deal with creditors.
In Bulgaria, United Bulgarian Bank, Piraeus Bank Bulgaria and Alpha Bank are 100 percent owned by Greek banks while Postbank is 54.2 percent Greek-owned. Four Romanian banks and three Albanian banks are controlled by Greek parents.
“The second effect is the funding from the mother bank - is that still going to be possible or will local authorities have to step in to recapitalise those banks,” Quijano-Evans added.
He advises clients to buy Bulgarian credit default swaps (CDS) and to sell Croatian CDS to insure against the former’s greater links to Greece.
The funding gap - difference between loans and deposits - could be as big as 5 percent of GDP in Bulgaria if Greek banks stop financing their subsidiaries, Bank of America/Merrill Lynch calculates.
But the gap is under 2 percent in Romania and Serbia, BofA said.
On the positive side, links are looser than a few years ago. BofA estimates the funding gap was 8 percent in Bulgaria in 2012 and 6 percent in the other two countries.
Greek bank assets in Bulgaria were close to 30 percent of GDP in 2011 while in Serbia they were almost 20 percent, the BIS data shows.
