Bankers: Clock ticking against Greece

The increase in nonperforming loans, rapidly deteriorating liquidity conditions, the drastic cut in loans issued and all kinds of investment initiatives having been frozen are the main consequences of the uncertainty before the January 25 elections and concern over the outcome of the new government’s negotiations, according to senior bank officials.

The officials also told Kathimerini that Athens needs to reach an agreement with the eurozone on a new cooperation framework as soon as possible to restore trust and banish the risk of an economic derailment.

They added that banks experienced a major increase in new bad loans in January after months of decline, as the creation of new NPLs grew by between 20 and 30 percent for some.

On loan issues, December saw a reversal of the credit expansion trend observed in previous months, while new loans posted a sharp drop in January as a result of the major slide in deposits. Estimates point to a deposits outflow of 10 billion euros last month following the flight of another 4 billion euros in December.

Besides the decreasing deposits, banks are bleeding from the halt in transactions on the interbank market as well as treasury bill issues that banks are forced to cover. It is this marginal situation that has led banks to request emergency liquidity assistance (ELA) from the Bank of Greece, which comes at a high cost.

Senior officials also note that the biggest risk lies in the perpetuation of the current situation. They say that the sudden cessation of the growth momentum in December owing to election fears turned into stagnation in January due to election uncertainty. They added that the clock is ticking against the country, and the longer the economy continues to sink under the burden of uncertainty, the greater the cost of reverting to normality will be.

The new government, they stress, must swiftly agree to a new funding program and focus on reforms to modernize the economy. They also warn that if the government opts for policies leading to many months of negotiations with the eurozone, the risks of an economic derailment, and therefore the weakening of the credit system, will be huge.