The risks to financial stability in Greece are mainly exogenous, such as heightened geopolitical risks and the risk of a sharp repricing of assets in international money and capital markets, the Bank of Greece stresses in its Financial Stability Report for the month of October.

In the first half of 2024, Greek banks significantly enhanced their organic profitability and maintained a satisfactory level of liquidity and capital adequacy, the BoG underlines.

The outlook for the Greek banking sector is positive, but actions to finally clear the remaining stock of non-performing loans must continue in order to achieve convergence with the European average. 

The smooth functioning of the financial market infrastructure in the first half of 2024 had a positive impact on the stability of the domestic financial system.

The Greek banking sector is in a better position than in the past to cope with potential disruptions and perform its intermediary role, the report notes.

In the first half of 2024, Greek banks recorded a profit after tax and discontinued operations of €2.3 billion, compared with a profit of €1.9 billion in the first half of 2023. An increase in net interest and commission income, along with a positive contribution from income from payment transactions and asset management, were the driving forces behind this development.

RISK WEIGHTED ASSETS

As a result of an increase in risk-weighted assets that more than offset the increase in regulatory capital, the banking sector's capital adequacy remained almost unchanged in the first half of 2024. Specifically, the common equity Tier 1 ratio (CET1 ratio) on a consolidated basis decreased marginally to 15.4% in June 2024 from 15.5% in December 2023, and the total capital ratio (TCR) remained unchanged at 18.8%. However, these ratios remain below the European average (CET1 ratios: 15.8% and TCR: 19.9% in June 2024). Also, liquidity conditions in the Greek banking sector remained satisfactory in the first half of 2024. 

The quality of the credit institutions' loan portfolio in this period deteriorated slightly due to the inclusion of certain categories of loans guaranteed by the Greek government in the perimeter of non-performing loans (NPLs), following a supervisory requirement. It should be noted that the NPL ratio at the banking sector level (June 2024: 6.9%) remains high and several times higher than the European average (June 2024: 2.3%).

BANKING SECTOR

The outlook for the Greek banking sector is positive. However, they are intrinsically linked to the country's macroeconomic performance, which is also influenced by exogenous factors. A further intensification of geopolitical risks could have a negative impact, while a sharp repricing of assets in international money and capital markets could have a significant impact on the global economy. In addition, climate change and the risk of cyberattacks pose significant risks to the smooth functioning of the financial system.

In conclusion, ensuring conditions of financial stability depends to a large extent on the further strengthening of the Greek banking sector. At the same time, it highlights the importance of promoting the necessary reforms aimed at deepening the banking union and enhancing competitiveness at the EU level.