Capitalisation is a bright spot in the Greek banking sector, but asset quality and liquidity leave much to be desired. Danielle Myles looks at the data.

Finally, there is reason to be cautiously optimistic about the Greek economy. Over the summer the government sold its first international bond since 2014, both Fitch and Standard & Poor’s upgraded the sovereign’s credit rating, and the International Monetary Fund approved a conditional loan valued at up to $1.6bn.

Meanwhile Greece’s big four banks have made great strides in plugging the capital holes identified by EU regulators two years ago: they have hoisted their risk-weighted-capital ratios to between 16% and 18%, far above the Basel III 8% threshold. Although National Bank of Greece (NBG) and Piraeus had help from the Eurozone and Greek bailout funds, they have already started repaying these loans, having handed back €2bn in February.

Greece's largest four banks

Room for improvement

Asset quality and liquidity, however, are both at an earlier stage of recovery. Non-performing loans (NPL) remain stubbornly high. Among the world’s 1000 biggest banks, Alpha, Piraeus, Eurobank Ergasias and NBG have the fifth, sixth, seventh and eighth highest NPL ratios respectively. Alpha’s NPL numbers experienced a false dawn in 2014, dropping seven percentage points only to rebound by 11 points the following year.

But there are signs that the worst may be over. All four banks’ NPL ratios have plateaued since 2015, and their impairment charges and provisions (ICP) were slashed last year. ICP is the loss recognised on loan books to account for NPLs and other impaired assets in the coming year. NBG has set aside a fifth of the provisions it made in 2015, while the other three have cut ICP by two-thirds. If these reductions are based on accurate projections of an improving loan book, asset quality may be starting to turn a corner.     

Deposits of Greek banks

All four have cut their asset base over the past three years, most notably NBG (by 45%) and Eurobank Ergasias (35%). While this has reduced exposures and created liquidity, it has not led to a noticeable improvement in risk-weighted assets (RWA). The RWA density ratio – RWA divided by total assets – at all four banks has been relatively flat since 2012, so while they have shrunk their balance sheets, they have not equally derisked them. Admittedly, this is a difficult task given the country’s NPL problem. NBG is the exception, having reduced its RWA density from 61.6% in 2012 to 52.4% last year.

Measuring liquidity

The big four Greek banks’ loan-to-deposit (LTD) ratios – a common yardstick of liquidity – are 20 to 70 percentage points higher than the western European average. An LTD ratio that is too high suggests the bank may struggle to cover unforeseen liabilities. Eurobank Ergasias is the best performer in recent years, following and sometimes slipping below the regional average. NBG had a similar track record until 2016, when its LTD ratio surged to 133%.

Eurobank Ergasias’s and NBG’s deposit books suggest they have achieved this by reducing loans. They, along with Piraeus and Alpha, were hit by the nationwide bank runs in 2015 sparked by fears over faltering bailout talks. Data collected by The Banker suggests that deposits stabilised in 2016, however, with Piraeus and Eurobank Ergasias seeing net inflows of 5% and 12%, respectively. NBG saw a $19.6bn outflow but this is partially down to the sale of its Turkish subsidiary Finansbank.

All data sourced from


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