Opportunities for banks to expand loan books
Moody’s currently has a positive rating outlook for the four largest systemic Greek banks, in expectation of further improvements in their asset quality and underlying solvency. We expect more nonperforming exposure securitizations and asset sales to be implemented this year and next, which will reduce the overall problem loans on banks’ books, while there will also be some contribution in this regard from loan restructurings and liquidations. The potential formation of new NPEs due to the pandemic is unlikely to overturn banks’ plans to meet their NPE reduction targets to a single-digit NPE ratio over the next 12-18 months. In fact we expect that some of the banks met this target by the end of last year, as their NPE securitizations in the pipeline are gradually being effected. Greek banks are currently aiming for an NPE ratio of around 5-6% by the end of 2022, while the average for large EU banks is closer to 2% as of June 2021.
This effort will also be supported by new lending, which will have a denominator positive effect on the NPE ratio and will also provide traction to banks’ earnings and bottom-line profitability, improving their overall solvency. Looking ahead, we expect the improving economic growth prospects in Greece, which will receive around €30 billion in funding from the EU’s post-pandemic Recovery and Resilience Facility (RRF), will provide further good opportunities for banks to expand their loan books and improve their revenues. Concurrently, Greek banks will continue to face challenges in improving the quality of their capital, as a large proportion of their capital base is in the form of deferred tax credits (DTCs). Although these assets help banks comfortably meet their regulatory capital requirements, in our view they do not constitute a solid and tangible form of loss-absorbing capital.
