Private sector banking sector deposits drop in January on review jitters

Greek private sector bank deposits declined in January for the second month in a row, central bank data showed on Tuesday, as worries over the country's drawn out bailout review led to withdrawals.

Business and household deposits fell by 1.63 billion euros, or 1.34 percent month-on-month to 119.75 billion euros, their lowest level since November 2001. They had decreased by 3.42 billion euros to 121.38 billion in December.

Starting in December, the Bank of Greece stopped counting deposits of 4.2 billion euros held in the Loans & Consignment Fund and another 2.1 billion euros in the Deposit Guarantee Fund (TEKE) as private sector deposits.

Its move followed a reclassification by the country's statistics service ELSTAT, which groups the two institutions under the general government sector.

Greek banks had seen small deposit inflows in more than a year after the country clinched a third bailout to stay in the euro zone. They remain dependent on central bank borrowing to plug their funding gaps.

The gap between outstanding loans and deposits has forced banks to rely on borrowing from the European Central Bank and the Bank of Greece to plug their funding holes.

Greece's banking sector saw a 42 billion euro deposit outflow from December 2015 to July last year. Capital controls imposed on June 2015 helped contain the flight but sharply increased banks' dependence on emergency liquidity assistance (ELA) from the Bank of Greece.

The government has eased capital restrictions after making headway on bailout-mandated reforms and improved confidence in the banking system.

As part of the relaxation of controls, "mattress" cash that are returned to banks are not subject to the restrictions, meaning amounts deposited can be fully withdrawn.

[Reuters]