Bank of Greece: GDP growth this year but worsening economic outlook

The Bank of Greece sees increased risks for financial stability in the future due to high inflation, the deterioration of economic prospects and the increase in Greek bond yields in the Financial Stability Report. As a result, the Central Bank recommends vigilance by all the agencies involved in order to continue uninterrupted financing of the real economy. In this direction, the acceleration of flows from the European Recovery and Resilience Facility (RRF) will ease the pressures, contributing decisively to strengthening the financing of the economy.

The Ministry of Finance predicts that this year the country’s GDP will increase by 6.2%.

For banks, he warns that bad loans, despite their reduction, are the biggest challenge. He even warns that the further reduction of bad loans will have a greater capital burden for banks after the end of the government guarantee program (Heracles). . Therefore, in the more difficult environment that is shaping up to raise funding from the money and capital markets, the ability of banks to generate capital internally by strengthening organic profitability becomes a priority.

As stated in the Report, the high stock of non-performing loans (NPLs) remains the biggest challenge for the banking sector. The significant de-escalation of the NPL stock has significantly reduced the NPL ratio (June 2022: 10.1%), however banks’ actions will need to continue in order to achieve convergence with the European average.

Read more: Schertsos: GDP growth and public debt deleveraging amid twin crises – Charts

In addition, the worsening economic outlook increases uncertainty about the debt servicing capacity of non-financial corporations and households. As a consequence, banks may face a further deterioration in their asset quality with the creation of new NPLs.

The capital adequacy of banking groups declined marginally and the Common Equity Tier 1 ratio (CET1 ratio) on a consolidated basis stood at 13.2% in June 2022 from 13.6% in December 2021 and the Total Capital Ratio to 15.9% from 16.2% respectively. This decrease is mainly due to the increase in risk-weighted assets, as the impact from the gradual application of International Financial Reporting Standard 9 (IFRS 9) to regulatory capital was offset by the incorporation of operating profits.

Specifically, in the first half of 2022, Greek banking groups recorded profits after taxes and discontinued operations of 2.3 billion euros, compared to losses of 4.0 billion euros in the corresponding period of 2021.

Finally, the liquidity conditions of the banking sector presented a mixed picture. Access to money and capital markets to raise financing became more difficult under the normalization of monetary policy. However, deposits continued their upward trend (September 2022: €185.5 billion), reflecting strong economic growth and credit expansion, mainly to businesses.

RES-EMP

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