Banks reluctant to issue credit

Lenders are wary of the upcoming ECB stress tests and institutional handling of nonperforming loans By Yiannis Papadoyiannis

The improvement in the liquidity conditions at Greek banks, through share capital increases, bond issues and growing deposits, has had no impact on the real economy as it has not been translated into new loan issues.

Local lenders’ reluctance to channel fresh credit into the economy is due to two major factors of uncertainty: the upcoming stress tests by the European Central Bank, which threatens them with new capital requirements, and the way the issue of nonperforming loans will be handled institutionally. The subject of bad loans is also associated with the thorny issue of restructuring problematic and overindebted companies.

According to Bank of Greece figures, despite the positive course of the economy and the exceptionally good tourism figures, the balance of loans did not grow last month but in fact declined by 324 million euros. This meant that the repayment of old loans by far exceeded the issue of new ones. This figure was even higher than that for June 2013, when the balance had lost 212 million euros on a yearly basis.

The question therefore is, if banks have drawn liquidity of over 10 billion euros in the last few months, why should credit expansion remain stuck at the negative rate of 3.5 percent?

Senior bank officials tell Kathimerini that the low credit flow is not peculiar to Greece but is observed in most eurozone countries, mostly due to the European Central Bank stress tests.

This is seen to have minimized the effect of the ECB’s recent economy-boosting measures.

The 3.5 percent rate of credit contraction in Greece last month was the same as in May. It is mostly due to the reduction in the net flow to enterprises as the balance of corporate loans was reduced by 266 million euros, while the annual rate of corporate credit shrinkage came to 4.7 percent.

In contrast, there was an expansion in credit issued to the self-employed, farmers and individually owned enterprises.

Credit to this category increased in June by 71 million euros or 1.5 percent from June 2013, compared with a 1 percent increase in May.