Notwithstanding the significant progress achieved recently, the asset quality of the major Greek banks continues to be relatively weak when compared to the European average. However, in our view, the extension of the Hellenic Asset Protection Scheme (HAPS) until October 2022 should continue to facilitate a further reduction in nonperforming exposures.
The profitability of the Greek banking system remains weak, mainly constrained by subdued albeit recovering credit demand, modest revenue diversification, restructuring costs and elevated credit costs arising from the ongoing de-risking process and potential asset quality deterioration due to the global pandemic.
We believe that, systemwide, profitability remains vulnerable to the risk of additional loan-loss provisions if banks were to accelerate the NPE reduction process, or if the negative impact on asset quality resulting from the pandemic were to be worse than expected.
Nonetheless, higher credit demand and fee-driven business, potentially resulting from the progressive recovery in the economy from the pandemic, as well as additional efforts on cost reduction, could help banks support their earnings generation.