Moody’s intervention in BN: Among the most indebted countries in the world is Greece

The need for change in its economic structure Greece underlines with her intervention at Bankingnewsthe Moody’slisting at the same time a series of conditions that must be met in order to give investment grade status to our economy.
According to Nonda Nikolaidis, Vice President and Senior Credit Officer of the American company, one of which is the continuation of the current economic policies, the fiscal normalization and the further consolidation of the banks from non-performing loans, which must come down to 2.5%, in order to convergence with the European average.
In this case it is a challenge the high interest rate environmentwhich mainly affects vulnerable borrowers.
On the larger issue of debt, Moody’s “sees” it at 150% by 2025, however, even so, in the next 3-5 years Greece will continue to have one of the highest levels of debt in the world.
As for Greek banks, their ongoing efforts to further reduce their costs will help support their earnings in 2024.
“Their profitability will remain strong, despite not fluctuating to 2023 levels.
High interest rates will continue to be beneficial to net interest income, even though in the second half of 2024 there will be monetary easing, while the beta of deposits will be higher than in 2023, increasing the cost of bank deposits.

The interview of Nodas Nicolaidis, Vice President and Senior Credit Officer of Moody’s, to the journalist of BN, Nikos Bartzeliotis.

On September 13, 2024, Moody’s is expected to assess the Greek economy. There is a possibility to upgrade it to investment grade. What factors will contribute to upgrading or maintaining the current rating?

We never reveal the result of a review before it’s time to make it public.
In any case, the continuation of the current economic policies, the commitment to fiscal consolidation, the successful implementation of reforms especially in the judicial system, which will shield the Greek economy against external shocks and blows, the faster than expected improvement of the fiscal health and the exemption from non-performing loans would be supporting factors for an upgrade and higher rating of Greece.
Moreover, any faster change in the economic structure of the country, which would improve its strength, would be considered credit positive.
Further improvements in the banking sector, a reduction in bank profitability volatility and a convergence of asset quality and capital ratios with the European average would also be positive credit events.

Although the “debt-to-GDP” ratio is decreasing, the absolute size of debt, together with repos, remains unchanged. What should be done to reduce it? After all, shouldn’t debt reduction be a state’s top priority?

We rate Greece’s fiscal strength as “ba2″. If nothing else, with a debt-to-GDP ratio of 161% at the end of 2023, the country will continue to have one of the highest public debts among the states we assess.
In this regard, it is worth saying that the debt-to-GDP ratio has decreased significantly from the levels of 207% in 2020.
In the period 2022 – 2024 we expect Greece to achieve one of the largest debt reductions compared to the rest of the countries we evaluate, and which we reflect in a positive adjustment of the debt trend.
Overall, public debt to GDP will fall to less than 150% by 2025.
However, in the next 3-5 years Greece will have one of the highest debts in the world.
It should be noted that we apply a positive adjustment for the large cash reserve of the country that exceeds the 30 billion euros (about 14% of GDP).

Greek banks make 3.6 billion in profits annually due to ECB interest rates. How sustainable is this profitability?

As far as Greek banks are concerned, we expect their profitability to remain strong, despite not fluctuating to 2023 levels.
High interest rates will continue to benefit banks’ net interest income, even though the second half of 2024 will see monetary easing, while deposit beta will be higher than in 2023, increasing the cost of bank deposits.
The combined effect of these two factors will put pressure on the banks’ recurring profits, which, however, will remain at satisfactory levels thanks to the good rate of new loans granted to Greek companies.
In addition, banks’ ongoing efforts to further reduce their costs will help support their profitability in 2024.
In our baseline scenario, the average return on equity (RoE) and average return on assets (RoA) of Greek banks will fluctuate in 2024 at more smoothed levels, around 12% and 1.1% respectively.

Greek banks have made an impressive jump in resolution from 40% NPEs years ago to below 5% today.
What are the challenges they face going forward?

Indeed, the improvement of quality of the assets of Greek banks through the reduction of non-performing loan ratios in recent years has been impressive and has been one of the main factors leading to our ratings upgrades.
We therefore expect the downward trend to continue during the 2024-2026 period, as banks aim to reduce NPL ratios to around 2.5%, which is more in line with the European average.
However, this goal will be a challenge, given that high interest rate environment in 2024 and the problems this has caused particularly for the most vulnerable borrowers, as well as those who have restructured their loans to make them more manageable.
In any case, we believe that the efforts of the banks to proactive approach to these vulnerable borrowers and the fact that credit expansion will continue at a good pace mainly due to the projects related to the Recovery and Resilience Fund will help reduce non-performing loans.
We also expect that new non-performing loan securitizationswithin the framework of the “Heracles III” guarantee program, will help.

www.bankingnews.gr