Moody's on Tuesday revised its outlook on the Greek banking system from negative to stable, based on its estimates of continued liquidity and expectations of higher profitability for the sector, hedging the positive outlook against a massive non-performing loan problem and limited lending opportunities.
"We expect banks in Greece to return to marginal profitability in 2016-17 on the back of significantly lower loan-loss provisions, decreased funding costs and contained operating expenses," the report’s author, and senior Moody’s analyst Nondas Nicolaides, stated.
Greek banks have been able to regain access to the inter-bank repo market, reducing their emergency liquidity assistance (ELA) balances and improving their funding and liquidity profiles. However, Moody's noted that they are likely to remain highly reliant on central bank funding over the outlook period.
Banks in Greece will also continue to face significant challenges in tackling their huge stock of problem loans. Moody's expects the volume of non-performing exposures (NPEs) to remain high at more than 40 percent of total lending by year-end 2017 from around 45 percent in June 2016.
