Greek bank liquidity squeeze hurts growth, BoG governor says

Greece must fulfill its agreement with its creditors “as soon as possible” to alleviate the liquidity squeeze and higher funding costs of its lenders, Bank of Greece Governor Yannis Stournaras said.

Greek lenders have a sufficient capital following their capital increases last year, Stournaras said in speech in Athens on Thursday. A Feb. 4 decision by the governing council of the European Central Bank to lift the waiver on Greek government bonds for its funding operations have left the lenders dependent on Emergency Liquidity Assistance, extended by the Bank of Greece, which carries a “substantially higher cost,” he said.

“The capacity of the banking system to finance the real economy does not depend on capital adequacy alone, but also on its liquidity,” Stournaras said, presenting the central bank’s annual report on the state of the Greek economy. “Following the recent capital increases, Greek banks have a sufficient capital base, but their liquidity has come under considerable strain, especially in the last few months.”

Euro-region finance ministers approved a package of Greek reforms, which include improved tax collection and tackling corruption, on Tuesday following a recommendation from creditor institutions. The agreement extends the country’s bailout, which was due to expire at the end of the month, until June, and lifts the prospect of an immediate withdrawal of ECB’s emergency liquidity support to the nation’s banks.