If the banks want to maintain their profitability in the coming years, given the reduction of interest rates by the ECB, as it relies to a significant extent on interest income, they will have to increase mainly their loan portfolio.

According to the bank administrationsthe credit expansion in 2024 is expected to fluctuate at the level of 7-8 billion euros.

According to data from the AnaCredit database (the Bank’s analytical credit data base), new loan disbursements to non-financial corporations (NFCs) in 2023 amounted to approximately 9 billion euros, down by a third compared to 2022 but still much higher than the corresponding amount in 2021 (7.0 billion euros).

Credit expansion in business loans slowed significantly during 2023 due to higher interest rates and weaker economic growth, but has rebounded in recent months. Bank lending to households continues to decline due to mortgage deleveraging.

Since the peak reached in September 2022 (12.3%), credit growth in business loans has eased significantly due to higher interest rates and weaker economic growth underpinning lower loan demand. However, since September 2023 the annual growth rate of corporate loans has recovered.

Greek banks benefit significantly from the Greek recovery story and the increase in corporate lending.

The Swiss house UBS which started coverage of Greek banks with market ratings points out, among other things, that Greek banks are emerging strongly from the Greek debt crisis and are in a position to benefit from the strong macroeconomic recovery and credit to businesses.

“We believe Greece offers a compelling macroeconomic recovery story as we maintain a forecast for GDP growth of 2.5% (2024) and 3.0% (2025). Having received around €15 billion of the €36 billion available funds of the Recovery and Resilience Facility (RRF), the use of the remaining funds over the next three years is a catalyst for investment”UBS points out.

And it expects a strong corporate credit cycle of around 8% p.a. (2023-2026), which should offset NIM compression as interest rates fall, with Greek banks having benefited from very low costs of financing.

In its recent estimates for Greek banks, S&P predicts that Greece’s real GDP will grow by 2.4% on average over the period 2024-2027, outperforming the rest of the eurozone.

The continued absorption of EU support funds will boost demand for new corporate loans. S&P expects banks’ loan portfolios to grow by 4% both this year and 2025, although the potential for underperformance remains high due to economic risks.

In addition, the house assumes that the high demand for bad Greek loans will continue. The positive outlook in the domestic real estate markets and the increased prospects for recovery due to the reforms will support this development.

The upgrading of the public’s creditworthiness also upgrades the creditworthiness of the banks, which will be able to borrow at lower interest rates.

It should be noted that all Greek banks have been upgraded to investment grade, and indeed two scales above the minimum threshold.

Cheaper borrowing for banks means equally cheaper borrowing for businesses and households.

The banks’ liquidity ratios, which are also monitored by the supervisor, far exceed the minimum requirements. After all, private deposits are on a continuous upward trajectory after 2019. They have increased from 143 billion in 2019 to 194 billion today, i.e. by about 50 billion. It is noted that at the end of 2023 the ratio of loans to deposits was 67, 2%, i.e. well below unity, which demonstrates the existence of a surplus in deposits and ample liquidity.