Gov’t leans on nervous banks

Top government officials are scheduled to meet with the Hellenic Bank Association today in a bid to convince lenders to pump more money into the economy, but banks may stand firm, fearing the risk of credit rating downgrades. Finance Minister Giorgos Papaconstantinou and Regional Development and Competitiveness Minister Michalis Chrysochoidis will call on the HBA, which has some 28 members, to provide more liquidity to the market if they want to benefit from the state’s 25-billion-euro plan to support the sector. Bank officials have indicated that they will use funds from the government program to offset losses arising from an outflow of deposits as households dip into savings as a means of getting by during the downturn. It is these deposit outflows, along with bank loan losses, that keep Greek lenders at risk of credit downgrades from ratings agency Moody’s. «Greek banks’ nonperforming loans remain at the upper end of expectations,» said Moody’s analyst Constantinos Kypreos yesterday. That, combined with continued deposit outflows, «could potentially increase the likelihood of negative rating actions.» Moody’s said deteriorating asset quality and funding conditions in the industry «continue to justify» a negative outlook on both the sector and separate bank ratings. Economic data for Greece and recent second-quarter earnings for banks indicate «a trajectory broadly in line» with expectations. Deposits by businesses and households held in Greek banks in July dropped to 212.3 billion euros from 216.5 billion euros the previous month, according to data from the Bank of Greece, the seventh straight monthly drop. Deposit outflows are estimated at about 31 billion euros so far this year, or 11 percent of total deposits, Moody’s said. Nonperforming loans have risen to 9 percent of the total in the first half of the year, Moody’s said. «Although these pressures are currently addressed by the banks access to European Central Bank funding, Moody’s notes the temporary nature of ECB support means that the system still needs to fix its funding structure and drastically reduce ECB funding over the medium term,» according to the statement.

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