Loosening of capital controls credit positive for Greek banks

A further loosening of capital controls and an improvement in asset quality are credit positive for Greek banks, Moody’s said on Monday.

In a report, the credit rating agency said that “the improving economic outlook of Greece allowed a loosening of capital controls and possibly will strengthen a still weak confidence in banks, helping to attract more deposits, which is credit positive”. Moody’s added that “a gradual return of deposits in the banking system in 2017 and higher optimism over a successful exit from the support programme were possibly the main factors behind the government’s and the Bank of Greece’s decision to loosen capital controls”.

An increase in deposits will help banks lower their dependence on the ELA mechanism, which totaled 21.6 billion euros at the end of December at a cost of around 1.5 pct, Moody’s said, adding that banks could see their capital cost falling by at least 120 basis points if they replace ELA with new deposits. “Lower finance cost will help banks’ net interest margin and strengthen their credit power,” the agency said.

Moody’s noted that actions for a more efficient management of NPEs have strengthened and will help banks to lower NPEs by around 37 pct by December 2019.