What about Greece’s banks?

The economy is in shambles but what is the status of its banks? Eleni D Dendrinou-Louri, Deputy Governor of Bank of Greece shares insights on Greece’s banking system.

During the current decade, the Greek banking system has enjoyed a favourable macroeconomic environment, in both Greece and in South Eastern Europe (SEE). This situation has contributed to healthy profitability, underpinned by rapid loan-portfolio growth, relatively wide net interest margins, high-yield lending to SEE borrowers and broadly resilient fee-income generation. These factors, in conjunction with the negligible exposure of Greek banks to US subprime assets and other complex structured products, considerably mitigated the financial fallout from the first wave of the recent global financial crisis, the worst since the Great Depression in the 1930s.

However, the Greek economy and other markets where Greek banks operate, notably SEE, have not been spared by the second round effects of the crisis. The liquidity squeeze and the asset-quality deterioration tested the Greek banking system, which fared rather well in the course of the previous year (9months to be exact). More precisely:

  • Greek banks’ capital adequacy remained at satisfactory levels and was gradually strengthened;
  • Profitability declined but remained at overall satisfactory levels;
  • Credit risk increased and so did loan loss charges, with signs of moderation in the 3rd quarter of the year;
  • Enhanced by ECB funding, the Greek Government’s liquidity support package, and the increase in deposit base, the liquidity position of Greek banks remained satisfactory.

The banks managed to hold on in the global financial crisis but outlook has worsened because of the sovereign debt risks.

Despite the perceived easing in international money and capital market conditions, serious challenges persist for the banking sector and Greek banks in particular. They mostly have to do with the domestic macroeconomic environment, the country’s fiscal imbalances and recent downgrades of sovereign ratings and the markets’ rating of Greek state debt.

A nice snapshot.

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