"Problem loans remain a severe challenge for Greek banks, but we expect that they will start to decline from around 45 percent of gross loans at end-2016 over the outlook period," Moody’s Vice President Nondas Nicolaides stated. "We also expect banks to remain marginally profitable in 2017-18."
Greek banks will likely struggle to meet its target of reducing non-performing loans by about 40 percent by the end of 2019, the agency said. The goal was set by the European Central Bank’s Single Supervisory Mechanism and Greece’s central bank.
Greek banks have committed to a quarterly plan to reduce problem loans, but slumping property prices and an ineffective legal framework will hinder their ability to reach the 40 percent target, the release explained.
Banks should remain profitable in the outlook period, and the agency said it expects their pre-provision income to improve. However, the operating environment will be highly dependent on the Greek government’s ability to get funding from its official creditors in a timely manner.
Moody’s said Greece’s real GDP should grow 1.5 percent in 2017 and 2 percent in 2018, an improvement from the zero percent growth in 2016.
