How Greek banks were left on the brink

greek banks

At that time, investors were betting on Greece’s turnaround and that an improving macroeconomic outlook would make all banks profitable as of 2015.

But the political developments that began last December, combined with the uncertainty over the last few months regarding the outcome of negotiations with lenders, took a huge toll on  banking stocks’ performance. At the same time, lenders’ fundamentals began deteriorating again.

Banks’ market value at last year’s issue prices totalled 31 billion euros, while their current market capitalization is below the 10 billion mark, which is a nosedive of almost 70 percent.

I examine below the impact of the past months on banks’ liquidity, asset quality and capital base, while also showing why capital controls must be avoided.

Liquidity

The first negative impact Greek banks felt since December concerned their liquidity, with deposit outflows and the gradual non-renewal of interbank lending.

Private sector withdrawals started at 4.2 billion euros in December, peaked at 12.8 billion in January, remained at high levels in February (9.6 billion), eased to 2.2 billion in March and then increased again to 4.7 billion in April, according to the latest Bank of Greece (BoG) data.

A breakdown of these outflows over this 5-month period shows that households withdrew 22.3 billion euros, accounting for more than 70 percent, followed by non-financial corporations with 7.2 billion (23 percent of total).

*Read the full article here.

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