Increased risks for financial stability sees the Bank of Greece even though the Greek banking sector is now in a much better position compared to the past. In the Financial Stability Report published today, it is pointed out, among other things, that the return of the banks in profitability 2022 is a positive development, while further strengthening of organic revenues is expected in 2023 as well.

The increase in key ECB interest rates boosts banks’ net interest income, as a very large proportion of loans are contracted at floating rates. However, in the medium term this effect may be mitigated by the increase in banks’ funding costs, due to the gradual increase in deposit rates on the one hand and the increased cost of issuing bonds to raise liquidity and cover supervisory requirements on the other.

Regarding the capital adequacy of the banks, the Report finds that it strengthened significantly in 2022, mainly due to the increase in the supervisory equity of the banks through the internal creation of capital and secondarily due to the issuance of additional capital instruments. Specifically, the Common Equity Tier 1 ratio (CET1 ratio) on a consolidated basis increased to 14.5% in December 2022, from 13.6% in December 2021 and the Total Capital Ratio (Total Capital Ratio – TCR) to 17.5%, from 16.2% respectively.

The percentage of non-performing loans in total loans (December 2022: 8.7%) has decreased, but remains significantly higher than the corresponding European average. Therefore, the SC recommends to the managements of the banks to continue the effort in order to achieve further convergence.

In addition, inflation and a slowdown in economic activity may affect the financial condition of non-financial corporations and households and contribute to the creation of new bad loans. For these reasons, the Bank of Greece estimates that banks should adapt by improving both the quality of their assets and their capital adequacy.

Also, the Bank of Greece warns that the potential strengthening of geopolitical risks, the maintenance of inflation at a high level, the gradually developing weaknesses in the financial system of the European Union and in particular in the commercial real estate market, but also the risk of exogenous disturbances in the money markets and capital, compose and demonstrate most emphatically the volatile international financial environment. In addition, the recent upheavals in the banking systems of the USA and Switzerland necessitate the vigilance of all parties involved and brought to the fore, in an emphatic way, the need to complete the banking union.