Financial Stability Review: October 2024
22/10/2024 - Press Releases
- Risks to financial stability in Greece are mainly exogenous, including heightened geopolitical risks and the risk of a sharp repricing of assets in international money and capital markets.
- In the first half of 2024, Greek banks' core profitability improved significantly, and their liquidity and capital adequacy were maintained at satisfactory levels.
- The outlook for the Greek banking sector is positive, although actions towards the definitive resolution of the legacy stock of non-performing loans should be continued so as to converge with the European average.
- The smooth functioning of financial market infrastructures in the first half of 2024 has had a positive impact on the stability of the domestic 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 examines developments in the macroeconomic and financial environment, assesses the risks to and the resilience of the banking and insurance sectors, as well as of the other sectors of the Greek financial system, and discusses the functioning of financial market infrastructures (i.e. payment systems, payment cards, central securities depositories and central counterparties).
This Review focuses on developments in the banking sector in the first half of 2024 and includes two Special Features:
a) Special Feature I describes the risk assessment framework developed by the Bank of Greece for the regular monitoring of risks arising from commercial real estate loans and investments. In addition, it presents the findings from the implementation of this assessment for the domestic commercial real estate market for the second half of 2023.
b) Special Feature II discusses the current landscape of cyber threats to financial market infrastructures, the potential risks that cyber attacks pose to infrastructures, and cyber threat management.
The Greek banking sector is better placed than in the past to withstand potential shocks and perform its intermediation function.
In the first half of 2024, Greek banks posted profits after tax and discontinued operations of EUR 2.3 billion, compared with profits of EUR 1.9 billion in the first half of 2023. This development was mainly underpinned by an increase in net interest and fee income, supported by fees from payment transactions and asset management.
The capital adequacy of the banking sector remained almost unchanged in the first half of 2024, as a rise in prudential own funds was offset by an increase in risk-weighted assets. In particular, the Common Equity Tier 1 (CET1) ratio on a consolidated basis fell marginally to 15.4% in June 2024, from 15.5% in December 2023, and the Total Capital Ratio (TCR) remained unchanged at 18.8%. However, these ratios are still below the European average (CET1: 15.8% and TCR: 19.9% in June 2024). Moreover, the liquidity of the Greek banking sector remained satisfactory in the first half of 2024.
The asset quality of credit institutions during this period deteriorated marginally, owing to the inclusion within the NPL perimeter – pursuant to a supervisory requirement – of certain government-guaranteed loans. It should be noted that the system-wide NPL ratio (June 2024: 6.9%) still remains high and a multiple of the average of European banks (December 2024: 2.3%).
The outlook for the Greek banking sector is positive. However, it is inextricably linked to Greece’s macroeconomic developments, which are in turn affected also by exogenous factors. A further rise in geopolitical risks may have a negative impact, while a sharp repricing of assets in international money and capital markets could have significant negative repercussions on the world economy. Additionally, climate change and the risk of cyber attacks pose significant risks to the smooth functioning of the financial system. In conclusion, safeguarding financial stability depends, to a large extent, on further enhancing the resilience of the Greek banking sector. At the same time, it becomes all the more important to promote the reforms necessary to deepen the Banking Union and strengthen competitiveness at EU level.
Related link:
Financial Stability Review Executive Summary, October 2024