DBRS: Possible pressure on Greek banks due to economic slowdown

By Leonidas Stergiou

The improved results of the four Greek systemic banks in the first half of the year reflect the significant progress made in reducing their risk and restructuring in recent years, together with the recovery of the Greek economy from the pandemic. However, the positive momentum is likely to come under pressure due to the slowing economy, the DBRS rating agency warns.

According to a report by the house for the four Greek systemic banks, they presented a total net profit of 2.3 billion euros in the first half of 2022, against a net loss of 4 billion euros in the same period of 2021, thanks to higher revenues, the lower operating costs and reduced risk costs. Revenues remained high, despite continued pressure on net interest income due to de-risking, supported by fee and trading income. The increase in interest rates is expected to boost the interest income of Greek banks due to the faster adjustment of interest rates on loans, compared to deposits.

Also, DBRS reports that NPL provisions and risk costs fell significantly in the first half of 2022 due to a strong improvement in the risk profile. Asset quality indicators continued to improve, supported by negative non-performing exposure (NPE) formation and new loan originations that exceeded expectations. After significant de-risking in 2020 and 2021, funds started to grow in the first half of 2022.

“With most of the deleveraging process already underway, we believe that the capitalization of Greek banks is set to benefit from improved internal capital formation going forward, based on higher income in the context of progressively higher interest rates and healthy creation of new loans, as well as reduced credit costs. However, indirect negative effects due to Russia’s invasion of Ukraine may contribute to a slowdown in the economy and add to pressures on loan quality in the medium term, thus absorbing some of the positive momentum,” said Andrea Costanzo, vice president of the DBRS Morningstar Global Financial Institutions Group.