Greek banking system in best position ever
The collapse of Silicon Valley Bank and the serious problems facing Credit Suisse will not have wider consequences for the European banking system, according to Greek bankers. This is because not only are the causes of the current turbulence different – and haven’t created chain reactions – but mainly because today the banking system worldwide has improved levels of liquidity and capital adequacy.
The Greek banking system is in a better position than ever, both in terms of liquidity and capital adequacy. Greek banks have made significant progress on nonperforming loans, reducing their NPL ratio to single digits, and although they are still far from the eurozone average – and therefore need to continue their efforts – the path they have traveled from the high NPL levels of 2015 is long.
Also important is the progress made in the capital adequacy of the banking system, which is satisfactory in relation to the average levels of the eurozone. From a supervisory point of view, we consistently point out that banks should also improve their capital quality by reducing the percentage of deferred tax assets, which can be done by improving their profitability, steadily and at a sustainable level.
Progress should still be made in the further digitization of the banking system, through investments in technology. Banks must intensify their efforts in the direction of upgrading their business model and digital adaptation. In addition to improving the fundamentals of Greek banks, it is necessary from a supervisory point of view to improve the security of the European banking system.
A key pillar is the finalization of the European deposit guarantee scheme, which has long been seriously delayed
A key pillar is the finalization of the European deposit guarantee scheme, which has long been seriously delayed. The importance of such a mechanism was highlighted during the recent financial crisis caused by the collapse of Silicon Valley Bank in the United States and was reflected in the immediate reaction of the American authorities, who immediately took very decisive measures to support the deposits. In this matter, the reservations of a number of countries that defend the view that risk reduction should come first and risk sharing should follow have not been lifted.
My proposal is to promote these initiatives in parallel. Another critical issue for strengthening the stabilization of the European banking system is to proceed with the homogenization of the banking crisis framework. Both of these conditions – i.e. the deposit guarantee scheme combined with a single crisis management system – would strengthen depositors’ confidence in the eurozone, further limiting the risk of contagion of any problems and helping to limit crises that may be caused by either external or internal factors.
Yannis Stournaras is the governor of the Bank of Greece.
