The exposure of Greek banks in war-torn countries (Russia, Ukraine) is negligible, however, as the Bank of Greece estimates in its Financial Stability Report published, any forecast for the extent of the final effects on the financial system, becomes extremely premature and precarious, as there is a high degree of uncertainty as to the outcome and duration of the war.
The financial stability report of the BoG in detail
In any case, the consequences of the Russian invasion of Ukraine have affected the prospects for the recovery of the Greek economy and intensify the challenges for financial stability.
The BoG calls on loan management companies to intensify their efforts to provide sustainable restructuring solutions to borrowers, which will ensure sound financial growth and thus facilitate the reintegration of their loans, under certain conditions, into the credit balance sheets. institutions.
As noted, Russia’s invasion of Ukraine has created new conditions, mitigating short-term growth prospects. The energy crisis is exacerbating inflationary pressures as a brake, while uncertainty about the duration of the war and its impact on the real economy is a deterrent to economic decision-making by businesses and households, given rising production costs and falling of their disposable income respectively. In this context, the banking sector is called upon to adapt immediately, facing the challenges that surround it.
The BoG once again emphasizes that the biggest challenge for Greek banks remains the reduction of red loans. The BoG considers that the banks should be vigilant taking into account the possibility creation of new MES (Non-performing loans)especially if the geopolitical crisis is prolonged for a long time or escalate further, in conjunction with the withdrawal of borrower support measures to deal with the pandemic.
The actions taken by the banks so far to manage the NPLs have undoubtedly contributed to the significant de-escalation of their stock, it is clarified. However, the ratio of NPLs to total loans remains high (December 2021: 12.8%). At the same time, measures to improve the quality of banks’ assets negatively affect the level of their capital adequacy, which is further pressured by the gradual implementation of International Financial Reporting Standard 9 (IFRS 9). In this light, the combination of the low quality of their regulatory capital, due to the high share of the final and liquidated deferred tax asset, and the structurally low profitability is an additional medium-term risk for banks.
The BoG argues that the continuation of the recovery of the Greek economy presupposes the strengthening of the financing of the real economy and the active participation of the banking sector. Consequently, the banks must, in the light of the secondary effects of the war in Ukraine, intensify their efforts to further consolidate their balance sheets.