MOODY’S
- 30 Apr 2023
- economy
The increase in deposits supports the liquidity and funding of Greek banks, Moody's also points out in its new report, where it underlines that Greek banks returned to profitability in 2022 after many years of losses, presenting strong credit growth with the highest interest rates and lower loan impairments to boost the sector's profits, according to capital.gr.
In particular, as Moody's points out, the four systemic banks posted strong profits in 2022, supported by high credit growth and interest rates, while they managed to clean up their balance sheets and further increase their customer deposits.
Non-performing loans fell further, although further improvements in asset quality will be a challenge for the sector, the house stressed. In more detail, NPEs, it says, continued to decline during 2022 as all four banks completed NPE securitizations reducing their weighted average NPEs to around 6.3% in 2022, from 10% in 2021 and 49% in December 2016. During 2023, however, Greek banks will find it more difficult to achieve any significant NPE reductions due to inflationary pressures and higher interest rates.
In terms of capital levels, the house emphasizes that they remain comfortably above regulatory requirements, although their quality is still undermined by the high level of deferred tax credits (DTC). All four Greek banks scored relatively adequate regulatory capital ratios in 2022, following significant capital consumption by most in recent years. The average CET1 ratio was 13.5% in 2022 compared to 12.4% in 2021, although Moody's expects tangible equity (TCE) ratios to be significantly lower than CET1 ratios.
Improved profitability in 2022, strong deposits
Greek banks' overall NII net interest income grew by 5.2% in 2022, supporting core operating income with the main headwind coming from strong loan growth averaging around 5.8%, which was mainly corporate lending the which was linked to project financing. Moreover, the rise in interest rates allowed Greek banks to raise lending rates faster than deposit rates.
Finally, as Moody's points out, the increase in deposits supports banks' liquidity and funding. Total customer deposits of the four Greek banks grew by 5.8% in 2022, supporting their liquidity with an average liquidity coverage ratio (LCR) of 198% at the end of 2022. Around half of their liquid assets are in Greek government securities , while existing hedges contain any unrealized losses. In addition, all four banks continued to tap international capital markets in 2022 to meet their minimum capital and eligible liabilities (MREL) requirements, and the house expects to continue to do so this year, albeit at a higher cost.
