Greek Banking System: A Path Towards Resilience
Challenges in the Aftermath of the 2008 Crisis
The Greek banking system is still recovering from the 2008 crisis, with concerns surrounding its resilience. The sector’s heavy reliance on government guarantees and deposits at central banks has led to a significant increase in non-performing loans (NPLs), accounting for approximately 40% of total lending.
Credit Growth and Economic Recovery
Between 2011 and 2019, credit growth in Greece was negative, exacerbating the crisis. Although this trend has been reversed since 2020, funding towards the private sector remains low compared to pre-crisis levels. The slow recovery of credit undermines economic growth potential and limits banks’ profit-making capacity.
Private Debt Overhang: A Drag on the Economy
The transfer of NPLs from banks’ balance sheets does not guarantee a healthier credit environment, as debtors continue to be excluded from new bank credit. This private debt overhang acts as a drag on the economy, which could be further exacerbated by recent shocks such as the pandemic and inflationary pressures following the war in Ukraine.
Vulnerable Businesses: A Challenge for Banks
Greek businesses, particularly small and very small ones operating in low-value-added sectors, are vulnerable due to legacy debts from previous crises and limited capacity for growth. The fate of banks is tied to that of the broader economy, which has been shown to be unbalanced and unsustainable.
Path Towards Resilience: Modernization and Transformation
To address these challenges, Greek banks need to:
- Modernize corporate governance: Strengthening internal controls and improving decision-making processes.
- Rationalize operations: Reducing costs and increasing efficiency through process improvements and technology adoption.
- Accelerate digitalization: Leveraging technology to enhance customer experience, improve risk management, and increase competitiveness.
Opportunities for Sustainable Growth
The surge in Foreign Direct Investment (FDI) in recent years and the implementation of the Recovery and Resilience Plan provide opportunities for banking business that can help the economy onto a trajectory of sustainable growth.
Conclusion: A Critical Path to Sustainability
The Greek banking system’s resilience is closely tied to the country’s economic prospects, and its transformation will be critical to achieving sustainable growth. By embracing modernization, rationalizing operations, and accelerating digitalization, Greek banks can overcome challenges and unlock opportunities for a brighter future.