Greece turns up the heat on banks to boost lending
Greece is increasing pressure on the country’s top four banks to boost loans after the sector received nearly 50 billion euros of cheap liquidity from the Europe Central Bank but lenders are digging in their heels, saying they are doing the best they can.
Vasilis Rapanos, the head of the Hellenic Bank Association, has been called in by Finance Minister Christos Staikouras to address a parliamentary economics committee on Wednesday and explain lending practices adopted by banks as credit growth in the country remains low.
Officials from the Bank of Greece, the country’s central bank, industry and the Development Bank will also address the committee.
Greek credit growth remains in negative territory despite high liquidity levels in the broader economy that has entered a strong growth phase.
The latest data shows that lending to the private sector in August contracted by 0.8 percent, in a 337-million-euro drop, from a 1.2 percent reduction in the previous month. This compares to loan expansion to households and businesses in the eurozone of 3 percent.
Greek banks say that they are not in a position to issue more loans due to tighter lending criteria demanded by regulatory authorities and the weak credit profile of many Greek businesses and households. They also argue that demand for credit is low as the economy has only just started growing again after contracting last year by 9 percent.
The conservative stance adopted by lenders comes as they are still battling to managed some 30 billion euros of bad debt left behind by the country's economic crisis amidst fears of a new wave of NPLs emerging from the pandemic.
Critics, however, point out that Greece’s top four lenders – National Bank, Alpha Bank, Eurobank and Piraeus Bank, have received some 47 billion euros in liquidity from the eurosystem with negative interest rates and have reinvested large amounts of that money in low risk financial instruments, rather than providing more loans to small and medium sized businesses.
Greece’s lenders have also benefitted from a spike in deposits brought on by the pandemic which resulted in a deferred consumption, point out experts.
Tight lending practices have severely weighed on the Greek real estate sector despite advancing prices in the sector. This is keeping a lid on property deals as many are completed with the buyers' own funds.
Data indicates that this downward trend isn’t improving either, despite claims to the contrary from lenders.
The number of mortgages issued in August, contracted by an annual pace of 2.8 percent to 38.5 billion euros, according to figures from the Greek central bank. This comes after a contraction of 2.8 percent for both July and June.