Greek banking system there was a significant increase in grants loans in recent months relative to banks in the rest of the euro area, mainly due to strong trends in corporate lending. However, with economic slowdown and still relatively high levels of corporate and household debt Jeffreys expects loans to slow down in 2023.

Specifically, as reported by the House of Representatives, adjusted credit growth was 6.3% per annum in 2022, driven by double-digit growth in corporate lending (although household lending continued to decline). Lending has been in constant decline since 2011 due to efforts to reduce non-performing loans from the four systemically important banks, while among peripheral eurozone economies, Greece has seen the smallest reduction in private sector debt levels. According to Jeffreys, the growth of corporate loans this year may be well below the ambitious targets set by the management of Greek banks. Given the traditional relationship of corporate lending to nominal GDP growth, a slowdown in the Greek economy in 2023 could lead to a slowdown in corporate lending growth, although the impact of the Recovery Fund is expected to provide some support.

Since 2014 (i.e., a period of relative structural economic stability), corporate debt has increased and moved at about the same rate as nominal GDP. The 1% increase in nominal GDP was associated with a 0.85% increase in corporate debt. Based on this data, Jeffreys estimated that the Greek economy would need to grow at 7-10% per annum in nominal terms to meet the administration’s goals.

In his opinion, the growth of mortgage credit is also unlikely to be impressive. The recovery in Greek housing prices is supported by demand from abroad, but this does not necessarily create a high level of demand for mortgages. Deteriorating economic activity and broader demographic trends, as well as higher interest rates, will hit mortgage demand, suggesting subdued growth in line with bank management’s systemic assessments.

In addition, unlike the rest of Europe, the demand for consumer loans in Greece is not linked to the demand for durable goods. In the absence of significant changes in consumer attitudes, payments on consumer loans will remain close to current low levels. In this case, too, the deterioration in the state of household finances and the slowdown in growth rates do not indicate a strong growth trend in consumer loans.

On average, Jefferies estimates that lending growth this year will be 3% below management’s targets, while the slowdown in lending activity also means lower fee income for the industry.