Moody’s maintains a positive outlook for the Greek banking system despite difficult economic conditions and inflationary pressures, which are likely to limit economic growth in 2022, but with a possible recovery in 2023.
According to a report by the international rating agency, banks are still able to fully implement the plans to reduce their exposure to non-performing loans, which will further improve the quality of their assets.
The analysts of the agency
estimate that the strong corporate credit demand will continue, supporting the quality of assets and the basic profitability of Greek banks, while the need for loan loss forecasts will be significantly lower.
In addition, they stress, capital levels will stabilize as banks take on most of the losses on NPEs securitization up front in 2020-2021, while financing and liquidity will remain healthy as customer deposits increase.
“The positive outlook reflects our expectation that Greek banks will continue to improve their asset quality and profitability despite financial challenges, with stable capital and liquidity,” the house said.
The picture of the economy
Moody’s estimates that growth in Greece this year will reach 3% and in 2023 at 4.3%, arguing that the operating environment for banks will be difficult, but economic growth and credit demand will remain strong. He also points out that the important funds of the EU. through the Recovery Fund will help increase credit flows and mitigate risks over the next 12-18 months.
The quality of loans will be further improved
The same report states that Greek banks have significantly reduced NPEs in 2021, mainly through securitizations, and plan to continue this practice in 2022 with the “Hercules” plan having significantly contributed to the accelerated reduction of NPEs.
In particular, the NPE index decreased to about 10% in December 2021, according to the agency’s estimate, from 33% at the end of 2020 and from 49% in December 2016. Despite the decline, the NPE index of Greece remains one of the highest in the eurozone. In fact, some vulnerabilities remain from the net inflows of NPE, which come mainly from the old problem loans.
All Greek banks are aiming for a single-digit NPE index over the next 12-18 months, Moody’s points out, with two of the largest banks already reporting indexes of around 7% from December 2021.
Profitability will increase
The international house points out that Greek banks are now focused on improving their structural profitability, which depends to a large extent on net interest income (NII). Despite the expected pressure on banks ‘profit margins and Net Income from Interest (NII) from NPE sales, the agency predicts new borrowing, higher commission income, cost containment and lower provisions for loan losses which will support banks’ profits over the next 12 -18 months. All banks aim to achieve a return on equity (ROE) of close to 10% by 2024, with some having already achieved an ROE of 6% -7% by 2021. An increase in ROE will allow banks to start paying dividends after from more than a decade of abstinence.