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Executive Summary of the Financial Stability Review: June 2021

17/06/2021 - Press Releases

  • The financial system has weathered well the COVID-19 pandemic crisis and has remained resilient.
  • The high stock of NPLs and the quality of prudential own funds remain the biggest challenges facing the financial system, along with a stronger bank-sovereign nexus.


The Executive Summary of the Financial Stability Review was posted today on the Bank of Greece website. The Review is prepared twice a year by the Financial Stability Department; it provides an overview and assessment of financial stability developments in Greece, identifies the potential drivers of systemic risks for the financial domestic banking sector and analyses the operation of financial infrastructures (i.e. payment systems, payment cards, central securities depositories and central clearing counterparties). The June 2021 Financial Stability Review focuses on developments in the banking sector during 2020. With specific regard to liquidity and market risks, the Review covers developments up to April 2021.

The COVID-19 pandemic significantly impacted economic activity in 2020, driving the economy into a deep recession and triggering shocks in the financial system. However, a series of measures enacted by the authorities (i.e. the Greek government, the European Central Bank and the Single Supervisory Mechanism) and examined in the Review have largely curbed the impact of the pandemic. Against this backdrop, the Greek banking sector must address both existing and novel, pandemic-related challenges and ensure the uninterrupted flow of credit to the real economy.

The high stock of non-performing loans (NPLs), along with an expected new wave of pandemic-induced defaults, remains the greatest challenge facing the banking sector. Important initiatives by Greek banks and the Greek government through the implementation of the Hellenic Asset Protection Scheme (HAPS) have definitely contributed to a reduction in the NPL ratio. However, this ratio is still a multiple of the European average, without taking into account any new NPLs that will emerge as a result of the COVID-19 pandemic crisis. In this context, banks must expedite the recognition of any new NPLs in their balance sheets as COVID-related support measures begin to be phased out, in order to ensure that the challenges that they are facing are properly disclosed. Capital adequacy is at a satisfactory level, taking into account the temporary supervisory relief measures for banks. Nonetheless, the quality of prudential own funds, given the high share of deferred tax credits (DTCs) that is expected to increase further as banks implement their NPL reduction strategies, poses heightened risks in the medium term.

The low-for-long interest rate environment and the monetary policy measures in place have favourably affected the liquidity situation of the banking sector, contributing to its bottom line in 2020. Still, core profitability remained low, as the larger size of bank balance sheets is not due to an increased supply of credit to the real economy. Finally, the intensifying bank-sovereign nexus is a potential source of risk, since banks’ exposures to central government via Greek Government Bond (GGB) holdings, Greek state guarantee programmes and DTCs will remain elevated for a long time.

As economic recovery gains traction, the banking sector will be called upon to actively fulfil its intermediation role. Therefore, vigilance and further initiatives on NPL resolution and strengthening capital quality should remain a priority in order to mitigate risks and boost credit supply to the real economy. Moreover, it is clear that support measures should be phased out gradually and the bank-sovereign nexus should be more closely monitored.

Related link:

Executive Summary of the Financial Stability Review – June 2021

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