Greek bank profits are hurt by credit contraction

The return of Greek banks to profit becomes particularly fragile as long as the credit contraction persists.

The reduction of loan issues, which has gone on for almost a decade, is depriving the credit system of its main source of revenues – takings from interests – while undermining efforts to improve the expenditure index that in the first half of the year deteriorated for local banks.

Domestic lenders’ January-June financial results point to a fresh reduction in interest revenues, ranging from -1.5 percent to -22.5 percent, depending on the bank.

At the same time, revenues from commissions have increase by between 0.5 percent and 5.5 percent as banks have shifted their focus to increasing takings from commissions, especially after the imposition of capital controls in June 2015. However, the commissions are just a fraction of the interest revenues and cannot offset the losses from the main source of operating profits of banks.

The biggest drop in interest revenues in the first half of the year belonged to National Bank (-22.5 percent to 564.4 million euros), which is attributed to the application of the new accounting standards (IFRS 9) in the first quarter and the repricing of mortgage loans amounting to 800 million euros. At the same time the NBG’s loan issues dropped 7.1 percent year-on-year.