By Michalis Psilos

Greek banks are in a much stronger position today than they were a decade ago, Claudia Buch, Chair of the Supervisory Board of the ECB, said in an interview with Naftemporiki, conducted by Michalis Psilos.

This is her third visit to Greece as Chair of the ECB’s Supervisory Board, and much has changed since her first visit in early 2024.

“Some elements of the world order that we once took for granted have been called into question, and geopolitical risks are clearly heightened. This will affect banks, although we may see the negative effects only over time. Strengthening banks’ resilience to geopolitical risks is thus one of our priorities, and we remain strongly committed to international cooperation. Just this month, the Group of Central Bank Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, reaffirmed its expectation of full and consistent implementation of the Basel III framework by all member jurisdictions as soon as possible. These common guardrails are important in uncertain times,” she stated.

Claudia Buch characterized the cooperation with the Bank of Greece as “very good.” “The resilience of banks has significantly improved: profitability has increased, capital positions have strengthened, and assets are of better quality. Non-performing loans have declined from 42% in 2015 to below 3% today. This is a major achievement, supported by the Hellenic Asset Protection Scheme. At the same time, further progress is needed. The scheme has expired; most non-performing loans are now outside the banking sector. Banks remain exposed to sectors that are sensitive to geopolitical risks and to borrowers that might have difficulties coping with higher costs. Continued efforts to strengthen capital quality and contain non-performing loans are essential,” she said.

Growth dynamics in Greece is stronger

More broadly, growth dynamics in Greece are stronger than the euro area average, which is good news, Claudia Buch said.

As also discussed in a recent ECB Blog post, further improving institutional quality, enhancing productivity and sustaining a prudent fiscal stance can help to keep up growth momentum. This is important as the economy also remains vulnerable to external shocks. The war in the Middle East is a case in point: it is already disrupting tourism, shipping and air travel, while pushing up energy prices and insurance costs. There is a high degree of uncertainty about how the situation will evolve and what the impact on banks could be. Since the COVID-19 crisis, fiscal policy has buffered several shocks, but its ability to do so might be more constrained in the future. That’s why it is important to maintain strong, resilient and well-capitalised banks.

The war in the Middle East

“Weaker growth, higher energy prices, higher tariffs, less fiscal space to buffer shocks to households and firms – all of this may lead to an upward shift in non-performing loans. Banks therefore need to remain very vigilant and monitor vulnerable sectors and borrowers,” Claudia Buch warned. “Banks need good stress-testing models; they need to develop scenarios to understand how geopolitical risks affect their business models and capitalisation. And this is exactly what we are working on. Last year, the EU-wide stress test asked banks how they would respond to a common adverse scenario. The answer was that, overall, the European banking sector is profitable and has capital buffers to absorb higher losses in an adverse geopolitical risk scenario. This year, we are reversing the question – we are asking banks to define the scenario that could lead to a capital depletion of 300 basis points. The answer will provide important insights into the quality of banks’ risk management systems, scenario planning and preparedness.”