Moody’s maintains Stable outlook on the Greek banking system

Tuesday, May 16th, 2017
Last Update: 12:00

In a report on Greek banking system, published yesterday, Moody’s maintained its stable outlook on the Greek banking system, reflecting its expectation of some improvement in banks΄ profitability and loan quality in 2017-18, balanced by very high level of problem loans. As per the same report, the outlook expresses Moody΄s expectation of how banks creditworthiness will evolve in Greece over the next 12-18 months.

Moody’s notes that Greek banks will face a significant challenge to meet the non-performing exposure (NPE) reduction target of around 40% by end-2019e, set by the SSM and the BoG.

According to Moody’s, while each bank has committed to a quarterly reduction plan, an ineffective legal framework and depressed property prices will make it hard for banks to reduce their NPE stock by the c€40bn required.

Also, the rating agency notes that the operating environment for Greek banks will remain challenging, and highly contingent on the Greek government΄s ability to receive funding from its official creditors in a timely manner. Moody΄s projects real GDP growth of 1.5% in 2017e and 2% in 2018e, up from 0% in 2016, while foresees that consumer spending and new investments will be limited, with unemployment remaining high (at 23.5% in Dec’16) and still depressed property prices.

Moody’s expects that dependence on central bank funding is likely to remain high, as the political and economic landscape remains fragile, undermining banks΄ efforts to attract deposits back into the banking system. The rating agency notes, however, that funding from both the ECB and the BoG has declined to around 20% of total banking assets in March 2017 from 32% at September 2015.

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