"The outlook for the Greek banking system has been changed to stable from negative, reflecting expectations of a return to growth of the domestic economy in 2014-15 after six years of contraction. The gradual economic recovery, coupled with Greek banks' recapitalisations and regained access to inter-bank and international capital markets, will further ease funding pressures and lead to a gradual recovery of pre-provision profitability in 2015. In addition, the outlook also takes into account the expected deterioration in asset quality and capital metrics in 2014, although at a much reduced pace than before, says Moody's Investors Service in a new report published today.
The rating agency considers that -- despite continued weak domestic demand in the wake of wage cuts and a still elevated unemployment rate -- the operating environment for Greek banks will gradually improve, signalling the re-emergence of more normalised financial metrics over the 12-18 month outlook horizon.
The new report: "Banking System Outlook: Greece", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Moody's forecasts gradual economic recovery -- with real GDP growth of 0.3% in 2014 and 1.2% in 2015 -- led by tourism and exports, as structural reforms are progressively transforming Greece into a more competitive export oriented economy from a consumer-led growth model. Despite still weak labour markets and demand, the rating agency considers that the current GDP growth path will create more sustainable business opportunities for banks, while the economies of scale resulting from the significant sector consolidation in 2012-13 will better position banks to benefit from efficiencies.
The rating agency also expects funding pressures on Greek banks to stabilise further, as dependence on central bank funding will continue to ease against the background economic recovery. Greek banks have been able to access both the interbank repo market, as well as the international capital markets, as evidenced by the recent senior debt issuance by two Greek banks. Moody's also notes that banks' recapitalisation in June 2013 and the resulting access to the interbank repo market has reduced funding requirements from the European Central Bank and Emergency Liquidity Assistance from the Bank of Greece to 19% of total assets at end-December 2013 from 34.6% in December 2012. However, customer deposits will remain fragile and will take time to replenish the sizeable loss of deposits in the system since 2010"
Source: Moody's Investor Service.
