Focus on guaranteeing all bank deposits

Talks between the local credit system and the European Central Bank are focusing on the need to avert an extensive haircut of deposits above 100,000 euros, while representatives of the country’s lenders are today about to visit the Bank of Greece to discuss the issue of recapitalization.

Banking sources say that the efforts by Frankfurt and Athens aim at securing even insecure deposits (of more than 100,000 euros), as both sides agree on the necessity of such a guarantee. However, it would take a formal statement by the ECB to banish concerns regarding that issue for good.

Sources from the credit sector estimate that out of the existing balance of deposits, at just over 120 billion euros, some 100 billion is covered by the guarantee of the 100,000 euros per account. The remaining 20 billion is not covered but mostly concerns deposits by corporations that are absolutely necessary for their continued operation as they are used for the payment of salaries, suppliers, etc. According to banking sources, a haircut to corporate deposits would create multiple problems with limited benefits.

Bank of Greece data showed on Monday that June witnessed a decline of deposits by 7.7 billion euros, while for the first time in years the value of new loans issued increased by 430 million euros, despite widespread concerns about the outcome of the negotiations with creditors.

Household and corporate deposits amounted to 122.2 billion euros last month, against 129.9 billion in May. After the latest decline deposits have reverted to levels unseen since 2003. Since December 2014 the drop in deposits has come to over 42 billion euros, shrinking 26 percent.

Loans issued increased by 430 million euros, against a negative flow of 253 million euros in May. This has shifted the annual rate of credit expansion from -2.1 percent in May to -1.7 percent in June. The increase in loans is likely to be associated with banks’ efforts to build up their defenses by lending to enterprises.