Greek banks are in a better position than in the past to withstand potential shocks, thereby bolstering the resilience of the Greek economy.
In 2023, Greek banks improved their fundamentals, enhancing their core profitability, capital adequacy, liquidity and asset quality, according to the Bank of Greece (BoG).
The overall improvement in the fundamentals of the Greek banking sector is undeniable. However, persistently high inflation, higher key European Central Bank (ECB) interest rates and slower economic growth are testing the resilience of firms and households and could lead to the emergence of new non-performing loans (NPLs).
In 2023, Greek banking groups posted profits, after tax and discontinued operations, amounting to 3.8 billion euros, compared with profits of 3.4 billion euros in 2022. A positive contribution came from higher net interest income as a result of higher key ECB interest rates, while a large fall in income from financial operations and other non-recurring revenue dampened profit growth.
The capital adequacy of Greek banking groups strengthened considerably, although the quality of their prudential own funds remains low. The improvement in the capital adequacy of banking groups was mainly achieved through internal capital generation on the back of core profitability, as well as through the issuance of capital instruments.
At the same time, the liquidity of Greek banks improved, due to an increase in deposits, bringing supervisory liquidity ratios to very satisfactory levels. Moreover, in 2023 Greek banks’ stock of NPLs as a share of total loans declined further (December 2023: 6.6%, December 2022: 8.7%), with NPL ratios standing below 5% for three of the four significant banks. However, the NPL ratio of less significant banks remains very high, at 37.6%.
In this regard, actions aimed at fully cleaning up bank balance sheets and converging with the European average (December 2023: 1.9%) should be continued.
Looking forward, the biggest challenge is associated with the international environment. A further rise in geopolitical risks, with a potential spread of armed conflicts and increasing trade tensions between the US and China, could have significant negative repercussions on the world economy and, therefore, on financial stability.
Furthermore, a sharp tightening of international financial conditions could cause financial stress to firms and households, with adverse effects on the Greek banking sector, constraining banks’ efforts to expand lending.
