Crossing the default line

With financial analysts pointing towards an ever greater expectation of Greece defaulting, forecasting its effect on the Australian economy, banks and share market is something that is taxing the minds of many.

Federal Treasurer Wayne Swan admitted concern about the unfolding Greek debt crisis, but believes Australia is shielded by the economic strength of the Asia-Pacific region. Last week the Treasurer told reporters in Canberra that whilst he hoped European authorities "deal with the challenges... here in this region, growth remains strong and that certainly is a good thing for us." For investors in Australia, the country's links to China may offer shelter from the impact of a potential Greek default, says Tim Murphy, co-head of research at independent investment research provider Morningstar.

"There are more important issues like whether China will be able to maintain its rate of growth, than what's happening in Europe," Murphy. Other commentators have been comparing the Greek debt crisis to the Asian financial crisis of 1997/98, which started in Thailand and swept across the global economy. In the fallout, South East Asia and Japan in particular saw their currencies fall and stock markets plunge; a scenario that could be repeated in Europe. For the major Australian banks, contagion in the eurozone if Greece defaults, triggering what could be Global Financial Crisis Mark 2, is the major concern.

Closer to home, Beirut Hellenic Bank's CEO James Wakim told Neos Kosmos that he believes the impact of a Greek default on the two Australian banks with Greek connections - Beirut Hellenic Bank (BHB) and Bank of Cyprus would be negligible. "We're both Australian banks, we're both regulated by the local regulator. Ninety per cent of BHB is owned by Bank of Beirut, which has already injected substantial funds to Australia, to the point that the capital adequacy of BHB is close to three times as much as what is normally required. We're not exposed at all. Zero exposure." Wakim made clear that BHB's Greek parent company Marfin Group have only a 10 per cent stake in BHB, and for this reason, in no way does the relationship constitute any kind of exposure for the Beirut Hellenic Bank.

"There's no intention, now or in the future, to call on that parent for additional capital," says Wakim, "that's because the way BHB is currently capitalised is way ahead of what the regulators in Australia require and what we need for our growth." So if the Greek banking system was impacted by Greece defaulting and Marfin got into trouble, would it have an effect on BHB? "None whatsoever," says the CEO. "There's no comparison. It's an Australian bank under Australian licensing and laws and well-capitalised." For those with investments and savings in the Greek banking system, the picture is very different and a lot darker. An outright default could bankrupt Greek banks, which together hold around a quarter of the Greek sovereign debt.