Liquidity issue crucial for lenders

Banks have warned that the total amount of loans issued in the market may drop in 2010 if Greece’s sovereign credit rating is not improved. Bank industry sources said liquidity levels will be a crucial factor for 2010, highlighting that access to international markets and the necessary capital levels will only be possible if the government gets the time it needs to improve its finances and implement structural reforms. If that does not occur, banks will not be able to raise capital funds needed nor channel them into loans. Domestic savings are not enough to cover the financing needs of the economy. Additionally, uncertainty in the market may lead to an outflow of deposits from the country. Bank sources believe that credit expansion in 2010 could reach an annual pace of 3 percent in a optimistic scenario, one that foresees the country’s fiscal developments as being positive. On the downside, if confidence in Greece is not restored, then there could be a drop in loans of around 5 percent. Apart from the vital issue of liquidity, Greek banks are also facing adverse market conditions. On the one hand, households that have taken out large loans have been hit hard by the recession, while at the same time small businesses are suffering from low levels of competitiveness and so far have failed to generate innovative ideas for dealing with it. Banks will need to channel money toward reliable customers in a task that seems difficult even if liquidity conditions are restored.

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