Banks’ profit challenges eased via ECB funding, Moody’s says
Greek banks will be able to face challenges to profitability from the coronavirus crisis with the help of increased funding from the European Central Bank, credit rating agency Moody’s said in a credit outlook report on Thursday.
Moody’s expects Greek banks’ profitability to weaken as coronavirus-related market disruption shrinks quality lending opportunities and erodes fee and commission income, mainly due to fewer disbursements of new loans.
The ECB’s move in April to accept Greek government bonds as eligible loan collateral, despite their “B1-stable” non-investment-grade rating, led to a steep rise in Greek banks’ ECB borrowing, Moody’s said.
Greek banks increased their ECB funding to 21.5 billion euros in April, around 8% of Greece’s total banking assets, from €12.4 billion in March and €8.1 billion in December 2019.
The banks borrowed through the ECB’s longer-term refinancing operations mechanism (LTRO), offered to eurozone commercial banks at -0.5%.
“We believe that Greek banks’ increased ECB funding was concurrent with their reduced interbank repo funding, which was around €13.5 billion at year-end 2019,” Moody’s said, noting that repo costs had risen due to the coronavirus pandemic.
The -0.5% cost of funding via the ECB’s LTRO, along with increased private-sector deposit balances of around €145 billion as of March at a cost not higher than 0.14%, will support banks’ net interest margins and profitability, Moody’s said.