Moody’s shift Greek banks’ outlook to positive

Moody’s announced on Thursday it has changed the outlook of the Greek as well as the Cypriot banking systems from stable to positive, forecasting a 3.6% economic expansion this year in Greece, according to the agency’s Banking System Outlooks.

That verdict decision reflects Moody’s expectations of further improvements in reducing high levels of legacy nonperforming loans (NPLs), mainly through their NPL sales and securitizations, as well as a gradual strengthening of the banks’ core earnings from a low base.

In Greece’s case, in particular, Moody’s projected the recovery of the national economy, anticipating that Greek “economic activity will recover from its coronavirus-induced slowdown, boosting credit growth and banking profits.”

It explained that “the gradual rollout of vaccines and progressive lifting of travel restrictions will benefit the tourism sector in particular, which is one of the main pillars of the country’s economy. At the same time, we anticipate an increase in domestic demand and consumption that will stimulate other sectors of the economy and drive GDP growth to around 3.6% in 2021 and 5.7% in 2022, improving business conditions for the banks.”

“Government measures to support the economy, together with the ongoing disposal of problem loans through securitizations will improve loan quality and reduce loan-loss provisioning charges,” the rating agency noted: “We expect the sector’s capital to deteriorate moderately but remain above regulatory requirements, and we foresee stable funding and liquidity conditions.”

Moody’s also expects Greek lenders’ profits to grow in the coming months: “We expect Greek banks’ profitability to improve in 2021-22 from a low base, as increased lending and a focus on core operations enhance recurring revenues, both in the form of net interest income and fees and commissions. At the same time, loan-loss provisions will be lower, partly due to the front-loading of provisions in the first half of 2020 as the pandemic struck, and partly due to expectations for lower NPEs. Efficiency gains through the closure of branch networks, staff reductions and increasingly digital processes will also support Greek banks’ profitability over the next 12 to 18 months,” Moody’s said.

Banking System Outlooks represent Moody’s assessment of fundamental credit conditions that will affect the creditworthiness of banks in a given system over the next 12-18 months.