Greek lenders are well capitalized and maintain buffers that could absorb additional credit losses, Bank of Greece governor Yannis Stournaras said on Friday at a conference organized by the central bank to mark its 90th anniversary.
“Following three rounds of recapitalization, Greek banks now have among the highest capital ratios of banks in the euro area and maintain buffers sufficient to absorb additional credit losses, as the recently completed pan-European stress test indicated,” he told participants.
“They have also markedly improved their liquidity position, reducing their reliance on central bank funding, regaining access to the interbank market and issuing covered bonds. Concurrently, customer deposits have been gradually increasing,” he added.
However, the ratio of non-performing exposures (NPEs) to total exposures remains quite elevated and constitutes “the most significant challenge” for the Greek banking sector, he said.
Banks have set operational targets to significantly reduce the stock of NPEs by end-2019 and significant reforms have been implemented, aimed at removing administrative, legal and judicial impediments to NPE resolution, as well as establishing a secondary market for NPL servicing and sales.
Stournaras said these efforts have started to bear fruit. According to end-June 2018 data, the stock of NPEs reached 88.6 billion euros (47.6 pct of total exposures), i.e. it decreased by 17.3 percent or 18.6 billion euros from its March 2016 peak.
“The key driver of NPE reduction so far has been write-offs. Going forward, NPL sales and securitization will play a more important role, coupled with collections, collateral liquidation and curing of loans,” he said.
“The pace of NPE reduction is anticipated to accelerate based on the more ambitious revised banks’ NPE targets covering the period up to 2021.”
The conference, titled “The birth of inter-war central banks: building a new monetary order,” is held on November 2-3.