Greek banks have seen liquidity of about 4 billion euros flow out of the local credit system since the start of the year.
The sum of household, corporate and general government sector deposits has dropped to 128 billion euros from 132 billion at the end of 2016, which has largely been blamed on the delays in the second bailout review and concerns that the economy will be derailed anew.
Senior bank officials say that most of the funds that had returned to the banking system last year have now been lost again. There is additional concern over so-called “new money” that is not affected by the capital controls and can easily be removed from the local system. Bank sources estimate that the system has some 4 billion euros of new money that could also flow out immediately, which would lead to the need to raise the ceiling of the emergency liquidity assistance (ELA) of the Bank of Greece.
Deposits started to increase in May 2016 after the completion of the first bailout review, and the inflow strengthened toward the end of the year when the impression the second review would be completed in December or by mid-January was consolidated.
Household and business deposits rose by 4.2 billion euros in 2016, while those of the general government saw a 1.4-billion-euro increase.
Although a large part of December’s growth was seasonal (agricultural subsidies, end of corporate years, Christmas bonuses etc), and a correction was anticipated in January, the picture became more dramatic after the first couple of weeks of the year, evoking memories of 2015.
The expectations created in late 2016 for a swift conclusion to the review proved erroneous and the deepening concern that the government may drag the talks on into the summer, risking a new impasse, has dramatically changed the positive atmosphere generated last year.
Withdrawals from cash machines have now increased considerably, fund returns have frozen, and corporations are ridding themselves of liquidity in their accounts and paying off their credit lines, in the hope the worst-case scenario will not be realized.