Greek banks’ full repayment of emergency liquidity assistance (ELA) drawn from the domestic central bank is credit positive as it reduces their funding costs, ratings agency Moody’s said in a credit outlook report on Thursday.
Greek banks’ outstanding ELA balance was around 1.0 billion euros ($1.1 billion) at the end of December, or about 0.4 percent of the banking system’s total assets, down sharply from a peak of 86.8 billion reached in June 2015 at the height of the debt crisis.
Deleveraging, coupled with the gradual return of deposits, helped banks improve their funding profile, allowing them to fully repay the emergency funds they borrowed from the Bank of Greece over the past three and half years.
“Without their dependence on ELA and given the sustainable improvement in liquidity conditions, Greek banks will likely attract greater interest from international unsecured bond investors,” Moody’s said.
It said Greek banks were also able to repay the ELA balance by increasing their interbank repo transactions as international banks’ appetite for Greek assets gradually increased over the last years.
The ELA repayment helps to strengthen depositors’ confidence in Greek banks, allowing them to attract more deposits. Between June 2015 and February 2019, private-sector deposits rose by about 8 percent as market sentiment, economic activity and employment began to improve.
More expensive than borrowing from the European Central Bank, the ELA’s full repayment helps lenders to diversify their funding mix.
“Greek banks started issuing covered bonds as an alternative source of funding to repay their ELA balance amid increased appetite among international investors for Greek banking risk,” the report said.
National Bank was the first of the large Greek banks to fully eliminate its ELA exposure in December 2017, followed by Piraeus Bank in July 2018.
Last month Alpha Bank told investors it had fully eliminated its ELA in February as did Eurobank. The two lenders were the last of Greece’s four big banks to fully eliminate their emergency borrowing from the Bank of Greece.
Much smaller Pancretan Cooperative Bank fully repaid its ELA exposure in August 2017, while Attica Bank repaid its exposure in the second half of March this year, Moody’s said.