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Moodys: Greek banking system outlook changed to positive on improving funding and asset risk 30 Jul 2018

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Moodys Investors Service has changed its outlook on the Greek banking system to positive from stable on expectations that banks funding and asset risk will improve over the next 12 to 18 months, amid an improving but still challenging operating environment.

In its report "Banking System Outlook -- Greece: Improving funding and asset risk, along with easing of bad loans, drive positive outlook," Moodys expects the Greek economy to maintain its positive momentum over the outlook period, contingent on the government remaining committed to structural reforms in order to attract more foreign investment. The rating agency projects GDP growth of 2% this year and 2.2% in 2019, supported by a strong increase in exports and services including tourism.

"Problem loans will gradually decline from very high levels as Greek banks benefit from improved loan recovery laws," said Nondas Nicolaides, a Vice President and Senior Credit Officer at Moodys. Moodys expects problem loans to remain elevated, but banks will likely meet the targets committed to the regulator reducing their non-performing exposures (NPEs) to around 35% of gross loans by the end of 2019.

The rating agency said that Greek banks have comfortable regulatory capital levels, with a common equity Tier 1 (CET1) ratio for the system of around 15.8% in March 2018, although sizeable Deferred Tax Assets (DTAs) continue to undermine the quality of such capital.


Greek banks dependence on central bank funding and emergency liquidity assistance (ELA) is declining, with ELA likely to be fully eliminated in coming months, as banks regain access to the interbank repo and covered bond markets and deposits gradually increase.


Most Greek banks are likely to remain marginally profitable through 2019, as credit and operating costs remain low. However, net interest margins will remain pressured as banks continue to deleverage and run down their loan balances through write offs and sales of NPEs.

 

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