Key takeaways
- Greece demonstrated greater resilience in the 2021 EU-wide Stress Test compared to the two earlier exercises of 2018 and 2015. We expect this to have been mainly driven by: (i) lower impairment losses, with NPEs more than halved since their 2015 peak, (ii) less severe NII stress due to favorable balance sheet structure, lower funding costs and banks improved long-term credit rating, and (iii) lower administrative expenses, as banks have downsized and streamlined operations.
- For the first time, Greece narrowed the capital depletion gap to Europe’s largest banks vis-à-vis the previous exercises. Notwithstanding, Greece remains relatively less capitalized than Europe at the end of the Stress Test horizon (2023), similar to the starting point.
In preparation of the 2023 EU-wide Stress Test and as Greece’s capital depletion still exceeds that of Europe, we argue that Greek banks shall:
a. Further de-risk their loan book, while closely monitoring COVID-19 impacts and ensuring risk-adjusted credit underwriting standards in the context of the envisaged substantial loan book expansion,
b. Diversify revenue streams into NFCI and geographically, in the wake of downward pressures on NII from deleveraging, and
c. Explore digitalization initiatives to enhance operational efficiency and enable an ‘always on’ risk management approach.
