Extra 1.2 bln in ELA for Greek banks seen as just covering outflows

The governing council of the European Central Bank on Thursday stuck to the pattern established in previous weeks as it marginally expanded – by 1.2 billion euros – the cash available to Greek lenders in emergency liquidity assistance (ELA) via the Bank of Greece, as they struggle to cope with the continued deposits outflow.

The ECB raised the ceiling of the liquidity available from 71.1 billion euros last week to 72.3 billion, an increase which according to bank officials will only marginally cover the cash flow needs of the local credit system. They explain that the new addition will in effect offset the flight of deposits observed in the last few days.

According to the central bank’s latest data, the deposits of the private sector – households and enterprises – amounted to 140 billion euros at the end of February. In March, according to bank estimates, the deposits dropped by a further 3 billion euros, while the southbound course has continued during the first few days of this month.

The slide in deposits comes on top of the major losses recorded in February (7.6 billion euros) and January (12.2 billion), after a 4-billion-euro decline in December 2014. In total, deposits have shrunk by at least 27 billion euros since end-November 2014, while banks are expressing worries that unless there is a clear and definitive agreement between the government and its creditors, complete with the mission of significant amounts of money to Greece, the deposits will continue to evaporate.

The prolonged political uncertainty and a lack of tangible results in the government’s negotiations with its creditors have led to the crumbling of the sum of deposits from 165 billion euros in September 2014 to about 137 billion euros last month. Deposits had peaked at 237 billion euros in December 2009.

Crucially, the exposure of the country’s credit system to the liquidity of the Eurosystem is now estimated at about 110 billion euros.

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