After a difficult year, Greece's four largest lenders are now better capitalised and less dependent on external funding, but bad loans remain a problem.

Annual results show that after a difficult 2015, growth of non-performing loans (NPLs) has slowed at Greece's four biggest banks, which all expanded their capital cushions and reduced their dependence on the Eurosystem funding mechanism in the year.

The banks all posted losses in 2015, amid rising charges on NPLs. Of the four largest Greek banks three – Eurobank, Alpha Bank and National Bank of Greece (NBG) – ended 2015 with larger losses than in 2014. The fourth, Piraeus, showed a slight €84m improvement compared with the previous year, but this can be attributed to the difficult 2014 it endured, when it ended the year with €3.01bn in losses, far more than NBG, Alpha Bank or Eurobank. 

Chart 1 2

NPLs continued to grow throughout 2015 (see chart one), although this growth slowed in the fourth quarter of the year, NPLs as a share of the total loanbook continued to increase by a small amount. The yearly increase was smallest – 0.7 percentage points – at Piraeus, which has the highest percentage of NPLs at 39.5%.

As NPLs rose, however, the banks shored up their balance sheets by increasing NPL coverage. The biggest improvement happened at NBG, where coverage increased by 15.3 percentage points to 74.6%, making it the best covered bank.

In the final months of 2015, the four banks also substantially increased their capital (see chart two). In November 2015, the European Central Bank (ECB) conducted stress tests, which uncovered a capital gap of €14.4bn for these lenders. The capital raising that followed considerably improved their capital positions. Now, the largest Greek lenders can rely on core equity Tier 1 capital of about 17%. NBG made the biggest improvement in capital by increasing it 7.9 percentage points to 17.5%.

Chart 2 3

Moreover, Greece's largest banks are decreasing their reliance on Eurosystem funding. After a wave of deposit outflows in early 2015, the banks were forced to rely on emergency liquidity assistance (ELA), in addition to the ECB funding window, which is less costly. ELA carries an interest rate of 1.55%, versus 0.05% for regular ECB funding.

Eurobank and Alpha Bank were most reliant on ELA funding throughout 2015, while NBG depended on it the least. NBG’s ELA funding was €10.9bn in March 2016, compared with more than €16bn at each of the three other banks. ECB also lowered the amount of funds available through ELA by €100m to €71.3bn in March this year, showing that the Greek banks are now more liquid. 

Chart 3 3


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