Ratings agency warns extended disruption could weigh on growth, raise refinancing risks and trigger a new wave of non-performing loans.

Markets may be pricing in a short-lived Middle East conflict, but a prolonged war – a scenario that cannot be ruled out – would put significant pressure on Greek banks’ business plans and financial performance, potentially triggering a new wave of non-performing loans, Moody’s told Kathimerini.

According to the ratings agency, Greek banks are unlikely to face an immediate deterioration in solvency from the direct effects of the conflict. However, secondary risks would rise if the disruption proves prolonged, as lenders would be exposed to weaker economic activity, reduced investor confidence and possible liquidity pressures.

“If the conflict is short-lived, there will be no serious impact on Greek banks,” Nontas Nikolaidis, Vice President and Senior Analyst for Bank Credit Ratings at Moody’s, told Kathimerini.

Fitch has a similar view, estimating that a brief conflict would not alter its assessment of the operating environment for Greek banks, given their limited exposure to the region and their capacity to absorb short-term shocks.

However, the outlook would change significantly in the event of a prolonged war. According to Nikolaidis, “a prolonged conflict in the Middle East is likely to have secondary effects on the Greek economy.”

These effects could stem from several factors, he said. “First, higher energy prices and inflationary pressures resulting from disruptions to shipping through the Strait of Hormuz. Second, a deepening of global risk aversion, which could broaden pressure on credit spreads in high-yield markets. Third, increased refinancing risks for issuers with short-term maturities, particularly in energy-intensive and cyclical sectors already facing high input costs. And fourth, added complications for the path of interest rates and central bank decision-making.”

“These developments are likely to negatively affect Greek banks’ growth plans and financial performance and could potentially lead to a new wave of non-performing exposures,” he added.

Original Story: Ekathimerini | Author: Eleftheria Kourtali
Edition: Prime Yield