Although the first data from banks are encouraging, as they show a reduction in non-performing loans, the European Central Bank remains cautious, believing that the «final bill» of the pandemic may prove to be more severe.
This is because according to the SSM, the ECB's supervisory arm, the central bank's services are identifying worrying findings that are likely to lead to a a new wave of bankruptcies and bad loans.
The ECB has found, in particular, that the non-performing loan ratio (NPL) increases for those loans where the grace period (moratoria) ends or for those categories of loans where the period of the state guarantee ends. These loans, together with those that have already been regulated in order to avoid «redundancy», are, according to SSM, the «Achilles» heel' of the banks.
The SSM estimates that even if the pandemic crisis did not lead to a direct increase in NPLs in the banking sector, the full impact of the pandemic on banks' balance sheets has not been fully captured. Despite declining NPL ratios and low insolvency levels in 2020 and 2021, particular attention needs to be paid to asset quality as state support measures are gradually withdrawn. At the same time, some economic sectors that were particularly vulnerable to the pandemic are still feeling its impact, while others are suffering from spillover effects such as supply chain disruptions. At present, banks do not generally appear to expect a significant deterioration in asset quality. In many cases, the capital and profitability of borrowing firms have been hit during the pandemic and are only surviving thanks to the liquidity they have received through support measures. Thus, in these circumstances, the bankruptcy of these companies is not prevented but merely suspended for a short period of time.
Overall, the SSM underlines that as the ultimate impact of the pandemic on banks« asset quality remains unclear, credit institutions have not yet »come out of the woodwork" , as the rapid recovery in profitability recorded may prove to be extremely short-lived. The rapid recovery in bank profits is, in part, due to volatile sources, such as trading revenues, which could quickly recede to lower levels.
As regards the Greek market, according to the Bank of Greece, at the end of June 2021, the amount of NPLs on the balance sheets of credit institutions (on an individual basis) decreased to 29.4 billion euros and the NPL ratio to 20.3%.
