Presented at: 14th Annual Conference of the Hellenic Finance and Accounting Association 6th National Conference of the Financial Engineering and Banking Society Abstract: It is widely known that the Greek economy in the recent years has suffered from a deep depression and as a result the first financial distresses have been appeared. This obviously leads to the question as to how much the investment position of the Greek commercial banks has been affected. Bearing in mind the above, this paper examines the impact of the global financial crisis and the implications of the sovereign debt crisis on the Greek commercial banks as a response to the above question for the period 2001-2014. This paper found out that the potential money losses are extremely high and the Greek’s commercial banks have been in danger and have been exposed to the systematic risk with an increasing trend.

1. Estimation of Value At Risk and Systematic
Risk of Greek Banking Sector:
Apostolos I. Zinas, Christos E. Kypraiou
Undergraduate Students of the Department of Economic Sciences
“Investment Opportunity or Investment Minefield”?
Aristotle University of Thessaloniki
14th Annual Conference of the Hellenic Finance and Accounting Association 2015
18-19 December 2015, Athens

2. Structure
1. Abstract
2. Introduction
3. Research Motives
4. Methodology
5. Empirical Analysis
6. Findings
2

3. 1. Abstract
• Over recent years Greek economy is being plagued by a deep recession with key
characteristics the public debt and the government deficits. As a result, the Greek economy
has been surrendered in a significant financial difficulty.
• Today, the greek banking system is facing considerable challenges as regards the financing
and development role which has been held in the Greek economy.
• In order to restart the economy a continuing effort is required to stabilize the Greek
banking sector and to attract new FDIs.
• We are going to examine the above statements by using the estimations of Value at Risk
(VaR) and Systematic Risk (Coefficient beta).
3

4. 2. Introduction
 The primary object of this report is to check up on how the systematic risk
(beta) and the value at risk (VaR) have been changed before the onset and
during the economic crisis
 The question is:
“Can the Greek banks characterized as “Investment Opportunity” or
“Investment Minefield” in order to be the pillars of the new economic growth
(positive scenario) or a fresh “Chernobyl Disaster” in the European Union
(negative scenario)”
4

5. 3. Research Motives (1/3)
1. The controversial path of the four Greek Banks and their exposure to the
systematic risk, after some crucial events (capital controls, recapitalization,
capital injections)
2. The descriptive statistics analysis of the banks’ yields prices and the general
price index, as well as, the correlation between the former two.
5

6. 3. Research Motives (2/3)
Coefficient of Variation (CV)
Τime ETE TPIER EUROB ALPHA Port
2001 -9.2 -6.1 -12.8 -5.3 -8.3
2002 -6.7 -5.2 -3.9 -5.8 -5.4
2003 2.6 3.9 4.8 3 3.6
2004 6 7.8 3.6 23.1 10.1
2005 5.3 5.5 13.3 50.3 18.6
2006 16.17 7.3 21.9 84.9 32.5
2007 4.8 21.1 -12.6 16.2 7.4
2008 -6.99 -4.27 -3.62 -3.8 -4.67
2009 6.8 9.5 7.9 8.9 8.3
2010 -3.6 -4.6 -6.6 -5 -5
2011 -4 -3.6 -2.9 -3.3 -3.5
2012 16 8.8 6.3 5.13 9.1
2013 -107.1 24.8 -61 -150.5 -73.5
2014 -4.5 -11 -5.4 -8 -7.2
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Average Yield
ETE TPIER EUROB ALPHA Port
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Standard Error
ETE TPIER EUROB ALPHA Port
6

7. 3. Research Motives (3/3)
Pearson Correlation
ETE TPIER EUROB ALPHA
General Price
Index
ETE 1 ,751**
,624**
,505**
,647**
TPIER ,751**
1 ,749**
,523**
,668**
EUROB ,624**
,749**
1 ,482**
,573**
ALPHA ,505**
,523**
,482**
1 ,634**
General Price
Index
,647**
,668**
,573**
,634**
1
**. Correlation is significant at the 0.01 level (2-tailed).
|0,5| <Pearson Correlation < |0.7| Moderate to Strong Linear Correlation
Sig. (2-tailed)<0.05: Statistically Significant
7

8. 4. Methodology
 The only four Greek Systematic Banks have been chosen in order to be
conducted the research from 2011 to 2014.
 The above time frame has been separated in two sub-periods:
A. 2001-2007: “Pre-crisis”
B. 2008-2014: “During the deep recession”
 The analysis consists of three parts :
1. Estimation of Historical Simulation-VaR
2. Estimation of Systematic Risk (beta coefficient)
3. Probing the correlation between the above two estimations by the Pearson
Correlation Coefficient.
8

9. 4.1. Historical Simulation VaR
 It is nonparametric method that uses the empirical distribution of past returns
to generate a VaR.
 It is based on the assumption that history is repeating itself (Aproaches to VaR, Hao
Li, Stanford University)
Equation:
𝑅𝑡
𝑝
= 𝑤𝑖 𝑅𝑖,𝑡
𝑁
𝑖=1
, 𝑤ℎ 𝑒𝑡𝑒 𝑡 = 0 , … , 𝑇
Where,
9

10. 4.2. Systematic Risk-beta coefficient
Estimation Procedure:
1. Linear Regression: ri=αi+birm+εi (1), where ri is the return of the stock i
and rm is the market yield.
2. OLS Estimation: ri,t= (Pi,t– Pi,t-1)/Pi,t-1, (1) where Pi,t and Pi,t-1 are the
adjusted Closing Prices of the stock in in the respectively time moments.
3. Creating a portfolio with 25% participation of each share (General scenario).
10

11. 5.1. Estimation of VaR(1/4)
 For an investment position of €100.000 in each stock, we are going to analyze the:
• Average Yearly Variation
• Variation for the two sub-periods
11(€70,000)
(€60,000)
(€50,000)
(€40,000)
(€30,000)
(€20,000)
(€10,000)
€0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
VaR for 95% confidence interval
ETE TPIER EUROB ALPHA Port
(€90,000)
(€80,000)
(€70,000)
(€60,000)
(€50,000)
(€40,000)
(€30,000)
(€20,000)
(€10,000)
€0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
VaR for 99% confidence interval
ETE TPIER EUROB ALPHA Port

12. 5.1. Estimation of VaR(4/4)
12
-176%
-193%
-289%
-132%
-83%
-168%
-188%
-283%
-131%
-35%
-350%
-300%
-250%
-200%
-150%
-100%
-50%
0%
ETE TPIER EUROB ALPHA Port
ΔVaR for 95%
confidence interval
ΔVaR for 99%
confidence interval

13. 5.2. Systematic Risk - beta coefficient (1/2)
 In the second stage, the Systematic Risk of the banks and the General Portfolio were anticipated and
analyzed from 2001 to 2014; It’s a time period which illuminates plenty of information, regarding
the:
• Annual results
• Development of shares
• Average variation from one period to another
13
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Beta Coefficient
ETE TPIER EUROB ALPHA Port
ETE TRIER EUROB ALPHA Port
Avg. 1,465 1,518 1,557 1,415 1,489

14. 5.2. Systematic Risk-beta coefficient (2/2)
 «Eurobank Ergasias-EUROB» and «Nation Bank-ETE» present a rapid increment in the
second analyzed sub-period.
 «Alpha Bank-ALPHA» is moderate steady for both of the sub-periods
 The Portfolio is more exposed to systematic risk in the second sub-period
14
50.02%
44.55%
80.97%
2.79%
42.21%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
ETE TPIER EUROB ALPHA Port
Δbeta

15. 5.3. VaR-Beta - Pearson Correlation
 What is the relationship between the:
 "Value-at-Risk" estimations for 95% and 99% confidence interval.
 Estimations of "Systematic Risk -beta“.
 "Value at Risk" with the "Systemic Risk" for 95% and 99% confidence interval
15
Pearson Correlation for VaR 95% confidence interval
VaR beta
ETE TPIER EUROB ALPHA Port ETE TPIER EUROB ALPHA Port
VaR
ETE 1 ,976**
,949**
,880**
0,297 -,804**
-,849**
-,838**
0,062 -,820**
TPIER ,976**
1 ,974**
,930**
0,153 -,775**
-,845**
-,865**
-0,018 -,841**
EUROB ,949**
,974**
1 ,869**
0,059 -,802**
-,917**
-,942**
0,026 -,894**
ALPHA ,880**
,930**
,869**
1 0,209 -,709**
-,713**
-,776**
-0,326 -,812**
Port 0,297 0,153 0,059 0,209 1 -0,254 0,022 -0,004 0,079 -0,042
beta
ETE -,804**
-,775**
-,802**
-,709**
-0,254 1 ,807**
,825**
0,093 ,885**
TPIER -,849**
-,845**
-,917**
-,713**
0,022 ,807**
1 ,943**
0,022 ,932**
EUROB -,838**
-,865**
-,942**
-,776**
-0,004 ,825**
,943**
1 0,109 ,963**
ALPHA 0,062 -0,018 0,026 -0,326 0,079 0,093 0,022 0,109 1 0,298
Port -,820**
-,841**
-,894**
-,812**
-0,042 ,885**
,932**
,963**
0,298 1
**. Correlation is significant at the 0.01 level (2-tailed)

16. 6. Findings (1/2)
 The first sub period is indicated by positive average yields and steady risk of the
Greek Banking Sector, in contrast to the second sub-period where there are
negative average yields and the risk has been skyrocketed
 A potential damage in that analyzed portfolio has been increased because of the
augmentation in the estimated losses of the second sub-period
 During the period of crisis and deep recession, the analyzed banks are more
exposed to the market risk-systematic risk
 The incensement of the systematic risk of the Greek Banking Sector over the first
sub-period is disclosed as a moderate positive linear correlated between the average
yield of the general price index and the average yield of price shares. As a result, a
rise of the general price index leads to a rise of share prices’
16

17. 6. Findings (2/2)
 For both of the analyzed periods and levels of confidence interval the VaR appears
to be significant negative linear correlated with the coefficient beta. Thus, a rise of
the Systematic Risk leads to a rise of the VaR
 It is obvious that, the Greek Banking Sector has been in danger and has been
affected dramatically by the Economic Crisis which has arisen the last years. In this
framework, it can not be clearly characterized as an “opportunity” or a “minefield”
due to the existence of risky-relationships through the analyzed sector. However, it
could be hotly argued that, there are strong and intense relationships over the
analyzed banks which has been taken into account by a potential risk-tolerant
investor.
17

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