The Greek banking system is sound and solvent, however vigilance is required, as the challenges for financial stability remain high, pointed out the governor of the Bank of Greece, Yannis Stournaras, speaking today at the “FinForum 2023: The Day After” conference.

“In light of the positive outlook for the Greek economy and the significant improvement that has been achieved in recent years regarding the consolidation of Greek banks’ balance sheets, we can now say with certainty that the Greek banking system, as well as the Greek economy, they stopped being the “black sheep” of the eurozone, and can now look to the future with optimism. They are awaited with keen interest at the end of the month the results of the pan-European exercise of simulating extreme situations (stress tests) that will assess the resilience of Greek and European banks in an adverse scenario” he said characteristically.

Referring to investment grade, Mr. Stournaras repeated that the country is going to recover it in the near future. This development, as he explained, will have beneficial effects for the entire economy, as it will strengthen, through investments, economic growth and facilitate access to markets with lower (than existing) capital raising costs.

The positive effects will also be significant for the banks since they have plans for a significant amount issuance of bonds and equity instruments.

Regarding the risks faced by banks, the governor of the Bank of Greece argued that the rise in interest rates may have given a strong boost to banks’ net interest income in the short term, but in the medium term it may to increase the cost of credit risk, their operating costs, but also the cost of raising liquidity.

At the same time, the combination of high interest rates and inflation puts pressure on households and businesses, which may lead to an increase in bad loans. Development which mainly concerns the Greek banks which, despite the significant improvement, are still far from the eurozone average in relation to the non-performing loans index.

In addition, the real estate market (especially commercial real estate) is on a correction course and may expose some banks to losses.