Despite challenging economic conditions, recent improvements will likely lead Greek banks to see more deposit growth, accompanied by a gradual decline in problem loans and marginal profitability, according to a leading rating agency.
In a note to clients, Moody’s said the outlook for Greece's banking system is “positive” in expectation of more improvements in the banks' funding and asset risks.
"We expect more deposit growth and a gradual fall in problem loans. Banks should remain marginally profitable in 2019-20 as loan-loss provisioning and operating costs decline," said Nondas Nicolaides, Senior Credit Officer at Moody's.
“A gradual return of deposits and increasing access to the interbank lending market has allowed Greek banks to eliminate their emergency liquidity assistance. Further deposit increases are likely as the economy gradually recovers and as more investments flow into the country.”
The rating agency also said problem loans will slowly decline from very high levels as Greek banks benefit from improved loan recovery laws and a developing secondary market for nonperforming loans.
Overall, Moody's projects real GDP growth of around 2.2% in 2019 and 2% in 2020, from 2.1% in 2018. "Economic sentiment will continue to recover from a very low base. Unemployment will remain high and property prices will only gradually recover from depressed levels, challenging banks' growth."
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