Banks’ liquidity and the quality of loans have come under great pressure due to the major delay in the completion of the second bailout review of the country’s third bailout and the uncertainty felt since the start of 2017. As a result, lenders have proceeded to a downward revision of their key targets for the year, with the first half of this year viewed as more or less wasted and the government’s 2.7 percent economic growth target as unrealistic.
Officials at the country’s main banks say deposits and cash flow have suffered damage again this year. After a dramatic 2015, when deposits shrank by a staggering 40 billion euros, conditions improved and there were notable deposit inflows following last year’s first bailout review that amounted to 4.2 billion euros throughout 2016.
Banks had estimated that the completion of the second review within 2016, as the government had assured, would further improve bank clients’ confidence and accelerate the return of deposits.
That favorable scenario is now gone for good. Uncertainty has not only stopped the inflows but also triggered fresh outflows, so that the drop in of deposits since the start of the year has amounted to almost 4 billion euros, and it will take some time for confidence to be restored even after the review is completed.
The second major blow is in bad loans, where the reduction trend seen in the second half of 2016 has been reversed. After a few months when banks exceeded their nonperforming-loan reduction targets, bad loans bounced back in the first quarter of 2017, posting an increase of about 2 billion euros (recorded mainly in January and February).
Bank officials are telling Kathimerini that the year’s target of a 7 percent drop in NPLs could still be attained despite the delays, but only if no more time is wasted. Yet the clear deterioration of conditions will force banks to adopt a more conservative provisions policy, thereby reducing profits.
As for the course of the economy, banks see 1.8 percent growth this year instead of the 2.7 percent forecast in the budget, and that is only if the review is indeed completed in May.