The outlook for the Greek banking sector remains positive, however, actions to finalize the remaining stock of non-performing loans must continue in order to achieve convergence with the European average, points out the Bank of Greece (BoG) in its Stability Report Financial Stability Board, which is published twice a year by the Financial Stability Board.
As the Bank of Greece notes, in the first half of 2024, Greek banks significantly strengthened their organic profitability and maintained their liquidity and capital adequacy at a satisfactory level.
The continued functioning of the financial market infrastructure in the first half of 2024 has had a positive effect on the stability of the national financial system, according to the BoE.
As for the risks to financial stability in Greece, as highlighted by the BoE, they are mainly exogenous, such as the increase in geopolitical risks and the risk of a sharp revaluation of assets in international money and capital markets.
The Financial Stability Report examines developments in the macroeconomic and financial environment, assesses the risks and resilience of the banking sector, insurance companies and other sectors of the financial system and analyzes the functioning of financial market infrastructures (payment systems , payment cards, central securities depositories and central counterparties).
This Report focuses on the evolution that occurred in the banking sector in the first half of 2024, with two Special Topics also presented:
- Special Topic I describes the assessment framework developed by the Bank of Greece for the systematic monitoring of risks arising from loans and investments in commercial real estate. Furthermore, it presents the results of applying the aforementioned assessment to the national commercial real estate market for the second half of 2023.
- Special Topic II presents the current panorama of cyber threats to financial market infrastructures, the potential risks of incidents of cyber attacks on infrastructures, as well as ways to combat cyber threats.
The Bank’s estimates for the banking sector
More specifically, as the Bank of Greece highlights, the Greek banking sector is in a better position than in the past to deal with potential disruptions and fulfill its role as a mediator.
In the first half of 2024, Greek banks recorded after-tax profits and discontinued operations of 2.3 billion euros, which compares with profits of 1.9 billion euros in the first half of 2023. The increase in net interest income contributed decisively to this evolution and commissions, with a positive contribution from income from payment operations and asset management, as reported by the BoE.
The capital adequacy of the banking sector remained almost unchanged in the first half of 2024, as the increase in regulatory capital was offset by the increase in risk-weighted assets, according to the BoE. Specifically, the Common Equity Tier 1 ratio (CET1 ratio) on a consolidated basis decreased marginally to 15.4% in June 2024 from 15.5% in December 2023 and the total capital ratio (total capital ratio – TCR) remained unchanged at 18.8%. However, these ratios are still below the European average (CET1 ratios: 15.8% and TCR: 19.9% in June 2024). Furthermore, liquidity conditions in the Greek banking sector remained satisfactory in the first half of 2024, the BoE notes.
It also notes that the quality of credit institutions’ loan portfolio during the period in question deteriorated slightly, due to the inclusion of specific categories of loans guaranteed by the Greek State in the perimeter of non-performing loans (NPL), following a process supervisory requirement. The BoE highlights that the NPL ratio at the banking sector level (June 2024: 6.9%) still remains high and several times higher than the European average (June 2024: 2.3%).
Continuing, the BoE states that the prospects of the Greek banking sector are positive, however, they are inextricably linked to the country’s macroeconomic course, which is also influenced by external factors. According to the BoE, worsening geopolitical risks could have a negative effect, while a sharp revaluation of assets in international money and capital markets could have significant effects on the global economy. Furthermore, climate change and the risk of cyber attacks pose significant risks to the orderly functioning of the financial system.
In conclusion, ensuring conditions of financial stability largely depend on greater protection of the Greek banking sector, highlights the Bank of Greece. He adds that, at the same time, the importance of promoting the necessary reforms with the aim of deepening the Banking Union and strengthening competitiveness at EU level is highlighted.