Danièle Nouy – Recovery of Greek banks with existing challenges

Danièle Nouy – Recovery of Greek banks with existing challenges

Speaking at the opening of the Delphi Economic Forum 2018, on Thursday, the Chair of the Supervisory Board at the European Central Bank, Danièle Nouy, spoke of a recovering  Greek economy and its banking system, though noting there are still challenges lying ahead.

“… As long-term patients, Greek banks are still a little weak”, Nouy underlined. However, she believes that they are on the recovery path.

Although the financial crisis hit the local economy and the overall system stronger than other countries, thanks to the structural reforms the banks have undergone, things look brighter. A good sign is the gradual easing of capital controls.

“Emergency Liquidity Assistance (ELA) was a characteristic of the Greek crisis for a long period time. Banks are now less dependent on this mechanism. In 2017, emergency liquidity assistance fell more than 50 pct and Greek banks are not seeking liquidity from the central bank but from capital markets. Depositors began returning and, after a further lifting of capital controls, they probably have more incentives to make new deposits in Greek banks.”

Regarding the reforms, Nouy said: “They have made changes in the composition of their boards, hired new, independent and experienced executives. This was the first significant step towards better governance. The new boards, however, have to produce results, which is not easy. They must change the culture, improve governance and lead banks onto the right path”, adding that, “the biggest challenge facing Greek banks and many other banks in the Eurozone is non-performing loans. This is a huge problem. NPLs lead to lower profits and prohibit the channeling of human and other resources to more productive activities. NPLs are not just a problem for banks. They are raising obstacles to offering new loans in the economy, hindering economic growth. It is true that although the levels of NPLs fell to 760 billion euros in the Eurozone, it is still very high. That’s why it is an absolute priority for European banking supervision.”

Yet again, Nouy reiterated the need for the implementation of e-auctions, supporting their “role”.

“As soon as e-auctions are put into place, we expect debtors to approach banks and to reach mutually acceptable solutions. The new system will contribute to changing attitudes toward the servicing and repayment of loans. This change will need time, but it is an absolutely necessary process.”…/IBNA