Greek banks have shed bad debt but remain vulnerable

Significance

Stronger balance sheets will reduce systemic risk in the sector. Efficient financial intermediation by Greek banks is a vital requirement for achieving economic growth targets in 2022. Ensuring the stability of the sector is also critical for timely collection and efficient allocation of funds from the EU’s Recovery and Resilience Facility (RRF).

Impacts

• Growing state involvement in the banking sector could amplify financial and fiscal risks in 2022-23.
• De-risking banks’ portfolios is credit-positive for Greece’s sovereign rating.
• More aggressive debt collection by new debt servicers could provoke resentment.
• New loan servicers’ ability to offer effective solutions to viable borrowers will affect the rate of post-pandemic corporate recovery.