With a lower-than-average contribution to profitability from fee income, Greek banks have less diversified revenue structures compared to European banks, says a Morningstar DBRS analysis of the sector.

According to it, net fee and commission income represents about 17% of total operating income in the first half of 2024, below the average of about 22% in Europe. According to the firm, banks based in Germany, Italy and the Nordic countries show the largest contribution to net fee and commission income, while Dutch, Greek and Irish banks are at the bottom of the list.

GREECE

Greek banks are among those that have benefited most in Europe from interest rate increases. A large proportion of their loans are at variable rates. However, their limited revenue diversification is a competitive disadvantage in an environment where net interest income (NII) is expected to decline.

THE DEBT

The specific underperformance of Greek banks relative to Europe in terms of revenue diversity is rooted in the global financial crisis and the Greek debt crisis. The Greek economy could not support the development of fee and commission income activities due to low incomes. However, subsequently, the Greek economy remained resilient despite significant challenges, including the pandemic and the energy crisis.

ECONOMY

The Greek economy continues to outperform the Eurozone average. Economic activity grew by 2.3% per annum in 2023 and real GDP is estimated to have increased by more than 2% last year, supported by strong private consumption, exports and investment growth.

LABOUR MARKET

The labor market has also shown resilience, with the unemployment rate standing at 9.6% in November 2024, down by more than 19 percentage points from its peak in July 2013.

INFLOWS

In addition, retail deposits have also recovered some of the losses that occurred during the Greek debt crisis but remain below pre-crisis levels. However, further inflows from the Recovery Fund (RRF) and the gradual restoration of household purchasing power will likely improve household deposits and help businesses maintain healthy turnover. 'Looking ahead, we expect that increasing structural reforms, easier access to finance, the expected improvement in the external environment, and recent structural reforms will support growth,' the analysts said.

GREEK Vs EUROPEAN BANKS

Lending growth is more favorable for Greek banks compared to their European counterparts, reflecting the recently stronger performance of the Greek economy as well as increased investment in the country. "We see this trend as likely to continue, spurred by Greece's stronger economic growth prospects and the opportunity for Greek banks to lend to finance RRF-related projects. This, coupled with the protection measures that banks have implemented in the recent past, should help mitigate the negative impact on NIIs from lower interest rates. In our view, revenue diversification and cost optimization initiatives remain critical to ensure the sustainability of Greek banks' earnings," DBRS concludes.