Bank deposits seen shrinking in January

By Yiannis Papadoyiannis

Private sector deposits at Greek banks posted a significant decline of more than 2 billion euros in January compared with December 2013, according to estimates by bank officials. The officials note that the decline is due to the increased tax obligations of both households and enterprises.

Bank deposits had grown by 2 billion euros in December, but that rise is considered coincidental given that the state paid debts amounting to 1.2 billion euros in the last month of 2013, which contributed to the rise in deposits.

However at the start of this year citizens and enterprises again resorted to their savings to meet their particularly high tax obligations.

After last month’s decline, deposits have returned to 160 billion euros, closer to the low point seen in June 2012 when back-to-back general elections led the deposit balance to 150.58 billion euros – the lowest since 2005.

Bank sources say that although cash conditions have improved, they remain a long way from satisfactory.

Despite the 10-billion-euro increase in deposits since the summer of 2012, private sector savings remain some 75 billion euros below the pre-crisis level at the end of 2009, when the deposits of households and enterprises had amounted to 237.5 billion euros.

The same sources estimate that a major part of the flight of funds from the banking system in 2011 and 2012 was due to fears of a possible Greek exit from the eurozone. That sum of deposits has not yet returned to local banks, with last year’s haircut at Cypriot banks accentuating fears regarding the risk to deposits in excess of 100,000 euros.

Depositors are discouraged from returning their money to their bank accounts in spite of assurances from the government, the Bank of Greece and European Union officials that their money will not be subject to a haircut. They note that after their recapitalization, local lenders have strengthened their capital bases considerably and point to the stock of 10 billion euros held at the Hellenic Financial Stability Fund (HFSF) in case one or more banks require additional assistance.

Boosting deposits is a crucial issue as it also is a key condition for the restoration of credit lines to households and corporations.

Banks estimate that deposits will return to the credit system to a substantial degree once the fears of political instability or a bank account haircut go away for good and the economy returns to growth.