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Moodys maintains Stable outlook on the Greek banking system

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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 Moodys 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 governments ability to receive funding from its official creditors in a timely manner.

Moodys 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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