Moody’s: Greek banks’ reduced ELA improves their profitability

Tuesday, June 6th, 2017
Last Update: 09:39

"The decrease of the ELA is credit positive for all four banks because it reduced their funding costs and fees paid for government guarantees from a year earlier, and improved their core profitability", Mood’s noted in its weekly credit outlook.Lower operating expenses, following staff reductions through voluntary exit schemes, also contributed to the higher pre-provision income. According to Moody’s, the declining funding and operating costs support Greek banks’ efforts to improve their profitability after many years of reported losses.

The expected conclusion of the 2nd review by the official lenders (ECB, EC, ESM and the IMF) for the country’s support programme, has somewhat improved investor sentiment and increased international banks’ risk appetite for exposure to Greek banks on a secured basis.

As per the rating agency, although Greek banks will continue to benefit from lower funding and fee costs throughout 2017, their bottom-line profitability remains constrained by the significant loan-loss provisions they continue to book. The delay in the conclusion of the 2nd review of Greece’s support programme somewhat compromised the positive momentum in declining NPLs in 2016, and the four systemically important banks reported around €600m of new nonperforming loans during Q1’17.

Moreover, an ineffective legal system and depressed property prices will challenge them to meet their NPL targets. Recently passed legislation regarding out-of-court workouts, electronic auctions and improvements in the insolvency framework, should help banks tackle their problem loans, especially those of strategic defaulters that abuse the system.

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