S&P, in a special analysis for the banking sector, estimates that the pandemic has put a brake on the positive economic momentum in Greece and Cyprus. The agency notes that the trend in terms of risks is now “stable” rather than “positive”. The report does not recommend a change of assessment.
According to the S&P analysis, the recession caused by the pandemic is slowing down the recovery in the real estate market and the indebtedness of the private sector. The global slowdown that is expected will have an impact on tourism, travel and services.
Essentially, the prospects for faster liquidation of bad loans are disappearing, an area in which significant progress has been made by the banks with the support of the state. For Greece, this S&P change from “positive” to “stable” is due to the fact that the agency predicts that profitability will remain weak and will temporarily slow down banks by further diversifying their financing profile in a more long-term and economical way.
According to the agency, Greece and Cyprus were hit by the pandemic in the midst of a recovery that has been gaining momentum for the past two years. The two countries had taken advantage of the trend to help banks clear large volumes of bad loans. As a result of the pandemic, however, and combined with the freezing of economic activity in Europe, the prospect of closing the huge gap that separates these two countries from the rest of the eurozone in terms of asset quality and profitability is limited.
As far as Greece is concerned, S&P expects a 9% recession this year and a 5% recovery in 2021. The blow will be strong as Covid-19 hits tourism, trade, travel and the construction industry. The pandemic, increased the risk of significant delays in banks’ plans to clear assets and restore profitability. NPEs were about €68 bn at the end of 2019 and the goal was to clear €30-35 bn in 2020-21, mainly through sales and securitization.
The agency believes that the pandemic and measures related to tackling it will make it difficult for retailers, small and medium-sized enterprises to recover, and thus the chances of recovering from commercial and mortgages with real estate guarantees.
It also expects a temporary reduction in demand for “bad” Greek debt as the recession in Europe will test the willingness of potential buyers of troubled portfolios, as well as the potential for the banks themselves to recover. The estimates are that in this environment, Hercules’ plan is unlikely to accelerate the expected rate of problematic assets.
S&P’s estimate now is that the overall NPEs index of the Greek banking system will be reduced to only 35% by the end of 2021 compared to the plans of the banks that saw this percentage be achieved at the end of this year. It expects credit losses to remain close to 200 basis points in 2020 and 2021, with or without NPEs sales.
Original Source: Euro2day
Adaptation/Summary: Kiki Athanasiadis