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In an article for the online edition DEAL journalist Kostas Nousis published a secret report on the Greek banks prepared by BlackRock. The study was commissioned by the Bank of Greece in August 2011 and mandated by the European Commission, the European Central Bank and the International Monetary Fund as a condition for the granting of a financial aid amounting to 109 billion euro provided for in the memorandum of 21 July 2011.

The Solar Project, as is the codename of this study, was worth 19 million euro. However, not only has it been kept secret but it has not been presented even to the bankers themselves. The only certain thing is that it is in the office of the Governor of the Bank of Greece, George Provopoulous, and of the Minister of Finance, Yiannis Stournaras.

All requests for the publication of the report had been rejected, including those expressed from the rostrum of parliament. The study was the basis for the change of the bank map of Greece, following the complete "inventory" of "bad" bank loans, even though the details of the study had not justified the need for contraction of the banking system.

This 105-page study is of great importance for the banking, business and political system of Greece, as it has come to light shortly before the delivery of the new report (on 30 November) commissioned again to the U.S. company.

One of the most important points in the report is the finding that 90% of housing loans granted by banks from Group A "have not been granted in accordance with the usual practice that must be followed to avoid potential risks."

• As regards loans to SMEs, 47% of them were at risk whereas the risk exposure regarding professional loans reached 51%.

• According to BlackRock, the tax assessment of the property at that time was 33% higher than the market price. The company determines the auctioning of houses as the only solution and suggests that at least 39% of housing loans should be forgiven, which has never been made ​​public until now.

Dividing the Greek banks into two groups

For the purposes of this report the American company has divided the Greek banks into two categories.

Group A includes seven banks, namely the National Bank of Greece, Eurobank, Alpha Bank, Piraeus Bank, Emporiki Bank, Agricultural Bank and Post Bank.

Group B includes eleven banks, namely Millennium Bank, Geniki Bank, Attica Bank, Probank, Proton Bank, T-Bank, FBB, Credicom Consumer Finance, Panellinia Bank, the Investment Bank of Greece and Aegean Baltic Bank.

Risk Analysis

According to the report by BlackRock Solution entitled "Diagnostic Assessment of Greek Banks" - 30 December 2011, the total amount of the loans granted by the 18 banks until 2011 and checked by the company was 255 billion euro.

Group A

The volume of the portfolio of Group A amounted to 231 billion euro but the check covered just 200 billion euro of them, including housing loans to the amount of 65 billion euro, consumer loans to the amount of 26 billion euro and commercial loans to the amount of 109 billion euro as well as a total of 2,981 credit records.

Group B

The check covered risk housing and consumer loans totalling over 500 million euro and risk loan portfolios totalling 500 million euro. Two banks in the group were analysed in relation to a specific issue.

• The liquidation of T-Bank had been announced on 17 December 2011, so all analyses referred to the period prior to June 30.

• Proton Bank had been divided into a "good" and a "bad" part on 10 October, so the analyses of loans also referred to 30 June.

BlackRock analysed loans granted by the 11 banks in Group B totalling 23.7 billion euro, 15.8 billion euro of which were business loans and the remaining 7.9 billion euro housing and consumer loans.

The approach used in connection with the consumer loans granted by 5 banks in Group B, namely Millennium Bank, Credicom, Geniki Bank, Attica Bank, T-Bank, was basically the same as that used for the banks in Group A.

Credit Cards

Positive assessment

Credit card loans granted by the banks in Group A amounted to 6.3 billion euro for a total number of 5 million loans. A sample of 80 loans, granted by the National Bank of Greece, Eurobank, Alpha Bank, Piraeus Bank, Agricultural Bank, had been taken for each bank in Group A, which had in its portfolio credit card loans exceeding the amount of 500 million euro. In general, it seems that the banks followed the instructions for compliance since the assessment of 84% of the loans granted by 5 of the largest banks for compliance with the loan granting policy is positive (A, B).

Results of the banks in Group B: the same criteria as for the banks in Group A had been requested for 5 of the 11 banks, namely Millennium Bank, Credicom, Geniki Bank, Attica Bank, T-Bank, as their exposures alone exceeded the amount of 500 million euro. For another 5 banks, including FBB, Panellinia Bank, Proton Bank, the Investment Bank of Greece, the company had requested general data to establish their exposure to housing loans, credit card loans, loans for the purchase of cars and other consumer loans.

Cars: the total number of loans for vehicle purchase was nearly 280,000, amounting to a total of 1.7 billion euro. The majority of the loans for the purchase of cars were regularly paid in comparison with other consumer loans.

Assessment of consumer loans

In Group A, the number of other consumer loans was 2.5 million, amounting to 18 billion euro.

The assessment of 80% of the loans granted by the 7 largest banks is A and B. However, the fact that 10% of the loans had not been granted in compliance with the politics of proper management and were considered ineligible offsets this high rate.

In terms of risk, the rate of loans assessed A and B drops to 54% and the assessment of 28% is D, as they had not been granted in compliance with the policy that must be implemented to secure healthy lending. The loans of 5 banks in Group B, namely Millennium Bank, Credicom, Geniki Bank, Attica Bank, T-Bank, had been checked since they amounted to over 500 million euro as well as the total loan portfolio of another 5 banks. The assessment of 46% of loans for the purchase of a car, 40% of credit card loans and 29% of other consumer loans is negative.

Business Loans

Downtrend in the price of securities

Regarding business loans, the total exposure of banks from Group A amounted to 41.7 billion euro.

The total gross value of tangible collateral securities which the banks had had up to the date of the report (30.06.2011) amounted to 261.8 billion euro and included personal and business collateral securities, excluding shipping loans. The tangible business collateral securities amounted to 99.8 billion euro. Their present value recalculated by BlackRock on the basis of current market prices is 71.8 billion euro.

Apparently, within three years from the beginning of 2011, real estate prices (until 2014) decreased by 17% in the core index and by 27% in the critical index (stress case). There has been a general decline in real estate prices (from 2008 to 2014) in the range of 52%. (In 2008, the value of a property was +35% and in 2014, -17%).

Loans to medium-sized enterprises

The total exposure of banks in lending to small- and medium-sized enterprises amounted to 42.8 billion euro, 32.8 billion euro of which correspond to tangible collateral securities. The study of the total exposure of small and medium-sized enterprises had established that the exposure of 279 borrowers amounted to 1.09 billion euro.

BlackRock determined 47% of a general sample of 279 loans as risk in comparison with the 39% considered as risk by the banks.

Collateral securities: 46% of enterprises provided property as collateral securities and the rest tangible collateral securities. Furthermore, 84 % of the sample participants stated that they had provided personal or business collateral securities.

Professional loans

The exposure of banks amounted to 27.2 billion euro. BlackRock determined 51% of the loans in a general sample as very risky in comparison with the 43% determined as risk by the banks. In addition, the banks had restructured and extended the period of repayment of the loans, and provided a grace period for 27% of loans while 45% of the loans had been corrected.

The collateral for 31% of the loans was real estate and for 63% personal property.

Housing loans

The number of housing loans was over 1 million, amounting to 65 billion euro. The practice of downplaying the risk of loss varied from bank to bank and was within the range of over 30%. The assessment of 88% of loans granted by banks from Group A  is A and B but the fact that 90% of the loans had not been granted in compliance with the accepted practices that should have been followed to avoid potential risks offsets this high rate. Moreover, BlackRock suggests that 39% of housing loans should be forgiven.

This conclusion was officially included in the report issued after a meeting on property market issues, held on 2 December 2011.

Then it was estimated that the tax assessment of real property for which a public tender had been started was 33% lower than the market value. The company had also found out that the first tenders for the sale of the property were not always successful and, therefore, it offered forgiveness higher than 33%. The procedure for the public sale of the property is used as a last resort but, in Greece, it is the only possible option for the lenders to get their money back.

Data from only 5 banks from Group B, namely Millennium Bank, Credicom, Geniki Bank, Attica Bank, T-Bank had been requested as they had granted loans worth over 500 million euro.

Another 5 banks, namely FBB, Panellinia Bank, Probank, Proton Bank, the Investment Bank of Greece, had been requested to present general information on their portfolio by asset categories, such as housing loans, credit card loans, loans for the purchase of cars and other consumer loans.

7.5 billion euro for shipping

The total exposure of banks to loans in the field of shipping amounted to 7.5 billion euro.

Only 5 banks in Group A had granted such loans, namely the National Bank of Greece, Eurobank, Alpha Bank, Piraeus Bank and Emporiki Bank. BlackRock had requested data from one bank in Group B, namely Aegean Baltic Bank, which specializes in granting such loans. The banks' portfolio included 305 vessels aged 0-4 years, 178 vessels aged 5-9 years, 154 vessels aged 10-14 years, 209 vessels aged 15-24 years and 130 vessels aged over 25 years.

Conclusions of the assessment

For the purposes of the analysis, BlackRock had requested information on the level of loans granted up to 30 June 2011, on all loans or loan commitments that existed in the banks in individual accounts, special loans granted by Greek or foreign branches as well as on loans granted and owned by leasing companies, commercial companies and financial companies operating in Greece as subsidiaries.

The total amount of loans granted by the banks in the two groups amounted to 255 billion euro. However, according to the agreement between BlackRock and the Bank of Greece, the purpose of the Diagnostic Assessment had been to cover the total Greek domestic loan portfolio and to exclude any possible foreign risk.

Thus, in its report, BlackRock excludes loans, amounting to 32 billion euro, granted by banks in Group A, by foreign subsidiaries or to foreign borrowers (not Greeks) or loans with collateral securities outside Greece.

In general, all loans to shipping companies remain within the scope of the report unlike intercompany loans. Therefore, the report by BlackRock does not include the rest of the 123.4 billion euro in loans consisting of loans amounting to 99.7 billion euro granted by banks in Group A and 23.7 billion euro granted by banks in Group B.