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Financial Stability Review: April 2024

25/04/2024 - Press Releases

- Risks to financial stability declined in the second half of 2023, although challenges still lie ahead, including the risk of a sharp repricing of assets in international money and capital markets and geopolitical risks, particularly following the further escalation of the Middle East conflict.

- In 2023, Greek banks improved their fundamentals, enhancing their core profitability, capital adequacy, liquidity and asset quality.

- Therefore, Greek banks are in a better position than in the past to withstand potential shocks, thereby bolstering the resilience of the Greek economy.

- Improvements have also been observed in the other sectors and infrastructures of the financial system.

The Executive Summary of the Financial Stability Review was posted today on the Bank of Greece website. The Review is published twice a year by the Financial Stability Department.

The Review assesses financial stability developments in Greece, identifies the main systemic risk factors for the domestic banking sector and the other sectors of the Greek financial system and discusses the operation of financial market infrastructures (i.e. payment systems, payment cards, central securities depositories and central counterparties).

The April 2024 Financial Stability Review focuses on developments in the banking sector during 2023. The Review includes two Special Features:

a) Special Feature I provides an overview of national frameworks on a positive neutral countercyclical capital buffer, which is set at a positive level early in the business and financial cycle, when cyclical systemic risks are neither elevated nor subdued, i.e. in a standard risk environment.

b) Special Feature II discusses the use of new technologies for the settlement of financial transactions.

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 EUR 3.8 billion, compared with profits of EUR 3.4 billion 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. In particular, the Common Equity Tier 1 (CET1) ratio on a consolidated basis rose to 15.5% in December 2023, from 14.5% in December 2022, and the Total Capital Ratio (TCR) to 18.7%, from 17.5% respectively. As a result, the CET1 ratio came closer to the European average (15.7% in December 2023), while the Total Capital Ratio still falls short of the European average (19.7% in December 2023).

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.

Related link:

Executive Summary of the Financial Stability Review, April 2024

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