Moody’s Investor Service raised its outlook for the banking system of Greece from negative to stable. According to the rating agency, its revised outlook reflects its expectations of return to growth of its domestic economy in 2014 to 2015 after suffering six years of economic recession.

moody's  greece

Gradual recovery

Moody’s Investors Service indicated that Greece will experience gradual economic recovery. According to the rating agency, the combination of Greek bank’s recapitalization and regained access to inter-bank as well as international capital markets will further alleviate funding pressures and lead to stable recovery of pre-provision profitability next year.

The rating agency said its current outlook for Greece banking system also considered the expected deterioration in asset quality and capital metrics this year, although a much reduced pace than before.

Moody’s Investors Service noted that the operating environment for Greek banks will improve gradually despite continued weak domestic demand amid wage cuts and the unemployment rate remained elevated. The ratings agency said the improvement signals the re-emergence of more normalized financial metrics over the next 12 to 18 months.

GDP growth

The ratings agency forecasted that Greece will achieve a real GDP growth of 0.3% this year, and 1.2% in 2015 driven by tourism and exports. Moody’s Investors Services noted that structural reforms are progressively transforming the country’s economy into a more competitive export oriented from a consumer-led growth model.

In addition, Moody’s Investors Service said Greece’s GDP growth path will create a more sustainable business opportunities for banks although the labor markets and demands are still weak. The rating s agency also believed that the economies of scale resulting from the significant sector consolidation in 2013 and a year earlier will position banks better to benefit from efficiencies.

Funding pressure

Moody’s Investors Service forecasted further stabilization on funding pressures in Greek banks. According to the rating agency, the Greek Bank’s dependence on funding from the central bank will continue to ease citing their ability to access both interbank repo market and international capital markets. The recent senior debt issuance by two Greek banks serves as evidence that funding pressure is stabilizing.

In addition, the rating agency also noted that the June 2013 recapitalization of Greek banks and the access to interbank repo market reduced funding requirement from the European Central Bank and Emergency Liquidity Assistance from the Bank of Greece from 34.9% in December 2012 to 19% of total assets last year.

Furthermore, Moody’s Investors Service emphasized that the Greek banking system continues to benefit from Troika (European Commission, the European Central Bank and the International Monetary Fund)