In 2023, Greek banks recorded profits after tax and discontinued operations of €3.8 billion, compared to profits of €3.4 billion in 2022.
A positive contribution came from an increase in net interest income as a result of the ECB’s base rate hike, while a large decline in financial operations and other non-recurring income contributed negatively, according to the Bank of Greece’s April Financial Stability Report.
The capital adequacy of Greek banking groups has strengthened significantly, but the quality of their regulatory capital is still low.
The improvement in capital adequacy was achieved mainly due to internal capital generation through profitability, but also through the issuance of capital instruments.
Specifically, the Common Equity Tier 1 ratio (CET1 ratio) on a consolidated basis increased to 15.5% in December 2023 from 14.5% in December 2022, and the Total Capital Ratio (TCR) increased to 18.7% from 17.5% respectively. As a result, the CET1 ratio converges with the European average (15.7% in December 2023), while the Total Capital Ratio continues to lag behind (19.7% in December 2023).
At the same time, the liquidity of Greek banks has improved due to the increase in deposits, resulting in supervisory liquidity ratios at a very satisfactory level.
Also, in 2023, the NPL ratio of Greek banks to total loans decreased further (December 2023: 6.6%, December 2022: 8.7%) with three of the four major banks having an NPL ratio below 5%.
However, in the least important banks the ratio of NPLs to total loans remains very high at 37.6%.
In this context, actions should continue to be taken to fully clean up banks’ balance sheets and to achieve convergence with the European average (December 2023: 1.9%).
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Looking ahead, the international environment is the biggest challenge.
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The intensification of geopolitical risks with the expansion of military conflicts, but also with the growing trade competition between the US and China, could have a significant negative impact on the global economy and, by extension, on financial stability.
In addition, any sharp deterioration in global financial conditions may cause turbulence with adverse effects on both the financial situation of firms and households and the Greek banking sector, as banks’ efforts to expand credit will become more difficult.