March 25, 2024 9:30 am


Greece economic outlook improves but long-term challenges remain

Greece’s economic outlook has improved after a decade of low growth, but significant challenges still linger. First, the positives. Economic activity expected to reach 2.3% in 2024, a modest uptick on last year’s 2.2% growth, according to the European Commission. This activity is supported by a resurgent tourism sector, Next Generation EU funding and foreign direct investment (FDI) inflows.


Private consumption is forecast to be supported by positive real wage growth while investment will continue to expand with the implementation of the National Recovery and Resilience Plan (NRRP) supported by Next Generation EU funds. Headline inflation is forecast to reach 2% by end-2025 as core inflation pressures dissipate gradually, while energy and food prices continue to normalise.


Robust growth and elevated inflation reduced Greece’s public debt-to-GDP ratio below pre-pandemic levels by the end of 2022, to 166.5% in June 2023. This eased the strain of tighter financial conditions on Greek public debt and funding requirements, narrowing sovereign bond yield spreads. Consequently, Greece’s credit rating was upgraded to investment grade for the first time since the sovereign debt crisis, making Greek sovereign bonds eligible for ECB monetary policy operations.


Growth risks are balanced but inflation risks are skewed to the upside. Persistent euro area inflation and prolonged high interest rates could dampen regional and domestic demand. Weather shocks and domestic pressures from wage and pension hikes could further soften growth. However, on the flip side, an acceleration of Greece’s ambitious structural reforms could enhance growth prospects. A further escalation of Russia’s war in Ukraine or the conflict in Gaza and Israel risks disrupting trade, fuel price pressures, and erode business confidence.


NPL outlook

The process of cleaning up Greek banks’ balance sheets, improving profitability and liquidity ratios has continued with success. The ratio of non-performing loans (NPLs) to total loans stood at 8.6% in June 2023, compared with 8.7% in December 2022, according to the Bank of Greece. The total stock of NPLs stood at €12.7 billion, down by 3.8% or €501 million from December 2022. All four systemic Greek banks have now reached their single-digit NPL targets, with one below 5%.


The lower NPL ratio, together with improved net interest income, has supported the recovery in Greek bank profits. However, the long-term sustainability of this recovery remains in doubt. Banks’ funding costs are expected to increase in the medium term due to the gradual increase in deposit rates and the increased cost of issuing bonds to meet minimum requirements for own funds and eligible liabilities (MREL). While banks’ capital adequacy is currently satisfactory, capital buffers need strengthening, according to the Bank of Greece.


In December, the Hercules securitisation program, which supports banks reduce legacy non-performing debt, was renewed for another 12 months with total guarantees capped at €2 billion. However, the finance ministry has already noted the €2 billion may prevent all pipeline securitisations from closing, prompting the government to consider raising the guarantees threshold to €2.5 to €3 billion, reported NPL Confidential. Greek banks will capitalise on the Hercules renewal to securitise some or all of the non-performing loans they have left before the guarantees expire, according to DBRS.


The total volume of Greek banks NPLs in 2023 was €12 billion, consisting of €8 billion from the big four systemic banks and the balance by the smaller banks. In 2024, around €15 billion worth of primary and secondary Greek NPL transactions are forecast to trade, reports NPL Confidential. These include:

(i) €2-2.5 billion by the four systemic banks, capsising on the Hercules program renewal;
(ii) €2.5-3 billion in non-performing exposures will be partly securitised and partly sold as a result of the merger of Pancreta Bank and Attica Bank;
(iii) €4.8 billion in three distressed loan packages from PQH. Known bidders include Fortress, Bain Capital, DK, Bracebridge Capital and Intrum , and EOS; and
(iv) €3-4 billion is estimated to trade this year in secondary debt transactions, including re-sales of loans both securitised and sold in prior years.


The Bank of Greece has begun to enforce the new stricter legislative framework to relicense servicers, in accordance with legislation that came into effect from the end of last year related to the EU Credit Servicer Directive. The new rules tighten the operating environment for servicers in Greece, including powers to impose heavy fines and the revocation of licenses for failure to comply.


All servicers must submit new data requirements to the central bank by the end of March to support the servicer re-licencing process. For many, this will require additional IT spend to ensure systems to digitalise borrower-servicer interactions. These costs may be prohibitive for some smaller servicers, which would lead to market consolidation in the number of active servicers in Greece.


Of the 23 firms licensed in 2019, only seven are currently managing NPL portfolios, with the remining 16 inactive. Around one-third of these have already declared to the bank of Greece an inability to maintain operating licences due to new stricter requirements, according to NPL Confidential.


Loan servicers in Greece have expressed concern at the new rules for operating, warning the new regime could destabilise the bad debt market and jeopardise the sustainable management of bad loans under the Hercules securitisation scheme.

This post was written by Timur Peters

Timur Peters is the founder of Debitos GmbH. He holds a diploma in finance and law. He has more than 10 years’ experience in the range of finance.
Before Founding Debitos Timur Peters was responsible in the distribution of Software for Banks and Financial Institutions for Comarch for the D/A/CH Region. Next to this he has worked for several years as a self employed Project Consultant in the area of Financing of Litigation cases, Peer2-Peer Credit Marketplaces and other online projects for financial institutions.


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