According to the Bank of Greece, risks to financial stability decreased in the second half of 2023, but difficulties still exist. These include the possibility of a sharp repricing of assets in international money and capital markets as well as geopolitical risks, which are especially concerning in light of the Middle East conflict's recent escalation.

- Greek banks strengthened their core profitability, capital adequacy, liquidity, and asset quality in 2023.

As a result, Greek banks are better equipped than in the past to withstand any shocks, which will increase the Greek economy's resilience.

Additionally, advancements have been noted in the financial system's other infrastructures and sectors.

There is no denying the general improvement in the Greek banking sector's fundamentals. But steadily rising inflation, higher benchmark interest rates set by the European Central Bank (ECB), and slower economic expansion are putting businesses' and consumers' resilience to the test and may cause new non-performing loans (NPLs) to emerge.

In 2023, Greek banking groups posted profits after tax and discontinued operations amounting to EUR 3.8 billion, compared with profits of EUR 3.4 billion in 2022. A positive contribution came from higher net interest income as a result of higher key ECB interest rates, while a large fall in income from financial operations and other non-recurring revenue dampened profit growth.

The capital adequacy of Greek banking groups strengthened considerably, although the quality of their prudential own funds remains low. The improvement in the capital adequacy of banking groups was mainly achieved through internal capital generation on the back of core profitability as well as through the issuance of capital instruments. In particular, the Common Equity Tier 1 (CET1) ratio on a consolidated basis rose to 15.5% in December 2023 from 14.5% in December 2022, and the Total Capital Ratio (TCR) rose to 18.7% from 17.5%, respectively. As a result, the CET1 ratio came closer to the European average (15.7% in December 2023), while the Total Capital Ratio still falls short of the European average (19.7% in December 2023).

At the same time, the liquidity of Greek banks improved due to an increase in deposits, bringing supervisory liquidity ratios to very satisfactory levels. Moreover, in 2023, Greek banks’ stock of NPLs as a share of total loans declined further (December 2023: 6.6%, December 2022: 8.7%), with NPL ratios standing below 5% for three of the four significant banks. However, the NPL ratio of less significant banks remains very high, at 37.6%. In this regard, actions aimed at fully cleaning up bank balance sheets and converging with the European average (December 2023: 1.9%) should be continued.

Looking forward, the biggest challenge is associated with the international environment. A further rise in geopolitical risks, with a potential spread of armed conflicts and increasing trade tensions between the US and China, could have significant negative repercussions on the world economy and, therefore, on financial stability. Furthermore, a sharp tightening of international financial conditions could cause financial stress for firms and households, with adverse effects on the Greek banking sector, constraining banks’ efforts to expand lending.