ECONOMY

Loan growth set to deteriorate

Credit growth in Greece is in for a rough ride at the end of 2010 as the recession enters its second year. The new year also looks set to start off with poor signs due to warnings of ratings downgrades from agencies Fitch and Moody’s that further weigh on liquidity. Additionally, worsening economic conditions, the expected contraction of the Greek economy for a third straight year and the widespread feeling that the worst has yet to come have pulled the brake on investment activity and consumer spending plans. Taking all the above factors into account, banking industry officials expect credit growth to dip into negative territory next year. Forecasts predict that loan growth will decrease by close to 2 percent, with the exact drop to be determined by the extent of the recession. Despite credit growth being in positive territory at the start of the year, conditions have worsened considerably since the beginning of autumn. For the month of October, total loans being paid off outpaced new credit issued considerably, according to Bank of Greece data. Businesses paid back 387 million euros more than they borrowed while loan growth to households was a negative 123 million euros. Bank officials believe that a slight dip into negative territory for household lending is an achievement for an economy contracting at an annual pace of 4 percent after shrinking by 2 percent in 2009. In response to criticism that the banking sector has turned off the lending tap, industry sources say that lending to businesses is expanding at a pace of 2.2 percent and blame the drop in lending to households on slumping demand arising from poor economic conditions. Sources also pointed out that there was a drop in deposits during the year due to concerns about the health of the banking system and households dipping into savings in order to get through the tough times.