Greek banks will be able to face challenges to profitability from the coronavirus crisis with the help of increased funding from the European Central Bank (ECB), said the credit rating agency Moody’s.

According to its latest credit outlook report, Moody’s expects Greek banks’ profitability to weaken as coronavirus-related market disruption shrinks quality lending opportunities and erodes fee and commission income, mainly due to fewer disbursements of new loans.

The ECB’s move in April to accept Greek government bonds as eligible loan collateral, despite their ‘B1-stable’ non-investment-grade rating, led to a steep rise in Greek banks’ ECB borrowing, Moody’s said.

Greek banks increased their ECB funding to €21.5 bn in April, around 8% of Greece’s total banking assets, from €12.4 bn in March and €8.1 bn in December 2019.

The banks borrowed through the ECB’s longer-term refinancing operations mechanism (LTRO), offered to euro zone commercial banks at -0.5%.

“We believe that Greek banks’ increased ECB funding was concurrent with their reduced interbank repo funding, which was around €13.5 bn at year-end 2019,” Moody’s said, noting that repo costs had risen due to the coronavirus pandemic.

The -0.5% cost of funding via the ECB’s LTRO, along with increased private-sector deposit balances of around €145 bn as of March at a cost not higher than 0.14%, will support banks’ net interest margins and profitability, Moody’s said.

Moody’s expects net interest income and margins at the country’s large banks – Piraeus, National, Eurobank and Alpha – to remain under pressure from falling loan balances and very low interest rates.

“However, we expect limited deterioration since banks will continue to accrue interest despite government relief measures that suspend borrowers’ repayment of loan capital for six months,” Moody’s said.

Original Story: Reuters | George Georgiopoulos 
Photo: Photo by Jonte Remos from FreeImages.com
Edition: Prime Yield