The rating agencies are finding strength against the current crisis in Greek banks. How do they indicate Moody’s And DBRSliquidity Greek banks shielded from international banking turmoil as well as potential Silicon Valley-style bond portfolio shocks due to strong and growing deposits.

In particular, in Moody’s online presentation on the outlook for the Greek economy after the agency’s upgrade to “positive” on Friday, while maintaining the rating three notches below investment grade, the agency’s chief analyst Stephen Duke, stressed that Greek banks are in very good condition to cope with the current international “storm”. As he noted, the deposit base for the entire sector is strong, and Greek banks have already taken many steps to strengthen their positions.

A Moody’s report on Greek banks notes that the total deposits of four Greek banks increased by 5.8% in 2022, maintaining their liquidity with an average liquidity coverage ratio of 198% at the end of 2022. About half of their liquid assets are in Greek government securities and are classified as held to maturity. While rising interest rates in recent quarters have resulted in some unrecorded losses in these portfolios, they are limited as banks have taken positions to hedge risk, the House said. “We do not expect Greek banks to record significant losses on these government securities in the 2023-2024 period,” Moody’s stresses. It goes on to say that all four banks continued to enter the international capital markets until 2022 to meet the minimum MREL requirements, and the house expects to continue to do so for the next 2-3 years, albeit at higher costs.

For its part, DBRS also considers it unlikely that Greek banks will face significant pressure in terms of their funding and liquidity due to a strong deposit base and sufficient liquidity. Abundant and growing deposits provide Greek banks with a stable, albeit moderately diversified, funding pool, he notes.

At the end of 2022, deposits accounted for about 81% of total funding.

At the end of 2022, deposits accounted for about 81% of total funding, with about 70% of the total coming from retail clients, and these deposits are generally less volatile than corporate deposits. At the same time, he points out, liquidity is at a satisfactory level, and the capital reserves of all four Greek systemic banks are sufficient to withstand any funding and liquidity pressure.

In attempting to quantify the potential impact of an SVB-type shock, DBRS concludes that it can be managed. According to it, Greek banks hold significant investments in fixed income securities, which accounted for about 16% of total assets at the end of 2022, which is about double their total capital. The vast majority of these securities are Greek government bonds and other government securities, and about 80% of them are classified at amortized cost.

Potential Impact

In a theoretical stress test conducted by the House of Representatives, Greek banks are forced to sell this entire portfolio of bonds at a pre-tax loss of 5-10% (as in the case of the collapse of SVB and Signature Bank in the US). He estimates the impact on funds will be around 150-300 basis points, not including hedging strategies. “We consider it unlikely that Greek banks will face significant funding and liquidity pressure given their strong deposit base and sufficient liquidity,” the House of Representatives concludes.