Private credit growth up

Credit expansion to the private sector in November 2001 rose by 27.3 percent year-on-year, according to the Bank of Greece (BoG)’s December economic report released yesterday, with mortgage and consumer credit reporting the highest growth. The central bank’s provisional data for November 2001 showed credit growth in the private sector reached 69.4 billion euros (23.65 trillion drachmas) from 54.51 billion euros (18.57 trillion drachmas) in the same month in 2000. Consumer loans increased by 42.1 percent to 7.5 billion euros, as Greeks took advantage of cheap loans to buy principally consumer products. Mortgage loans recorded a 37.4-percent jump to 15.2 billion euros (5.18 trillion drachmas). Despite a deceleration in the pace of growth, evident in the last quarter of 2001, the private sector credit boom is expected to continue flourishing this year, EFG Eurobank Ergasias economist Platon Monokroussos predicted. «Greece is playing catch-up with other eurozone countries in terms of the ratio of debt to gross domestic product,» he said. A recent report on Greece by Moody’s came to a similar conclusion. Noting that the ratio of private sector credit to GDP in Greece is almost half of the EU average, the credit ratings agency suggested that «there is room for further credit expansion over the medium term.» It said the biggest gap is in household credit, with consumer credit accounting for 4.6 percent of GDP against 9.1 percent for other southern European countries, and in mortgage credit, which amounted to 9 percent of GDP compared with 30 percent in other southern European countries. Eurobank’s Monokroussos said the private credit boom is also driven by the rise in the Greek standard of living and growing interest in real estate investments ahead of the 2004 Olympic Games. Escalating competition among banks eager to boost their market share, which resulted in a slew of interest rate cuts also encouraged Greeks to take out an inordinately large number of mortgage loans last year. According to BoG’s statistics, mortgage rates declined to 5.78 percent in December last year against 8.2 percent in the corresponding month in 2000. Consumer loan rates at the close of 2001 were down to 12.65 percent compared with 14.71 percent at the end of 2000. Moody’s however warned that excessive credit growth could create problems for Greek banks in the future, notably future asset quality problems. It said the risk profile for the sector could go up, especially for banks without the credit-vetting skills or the appropriate information systems. The absence of a centralized credit bureau in Greece is also a disadvantage.

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