February 23rd deal with Eurogroup gives Greece “room to breathe”: Citi Research
According to the latest report from Citi Research, the situation in Greece is apparently stabilizing after the February 20th agreement between Greece and the Eurogroup, at least for now. Citi analysts Ronit Ghose and Yafei Tian highlight deposit outflows have stabilized, liquidity for the next few months is all but assured and Greek banks have bounced back in the equities market.
Greek Banks – Current status of Greece
The Eurogroup and Greece came to an agreement last Friday, with related actions to follow in the coming weeks. Ghose and Tian offer a synopsis of the agreement: “In summary, (1) the existing Master Financial Assistance Facility Agreement (MFFA) will be extended for up to four months, (2) a successful review of “the extended arrangement” will lead to disbursement of outstanding EU funds to Greece, (3) the Greek authorities may get some flexibility on the required 2015 primary surplus as “economic circumstances in 2015″ will be taken into account and (4) some nomenclature has changed.”
In connection with the deal, the Greek government delivered a list of reform measures “based on the current arrangement” on Tuesday, February 24th. By end of April, an agreement must be finalized on the list of reforms that Greece has to undertake.
Of note, the four-month extension is set to expire at the end of June, before bond repayments to the ECB of €6.7bn come due in July and August. Obviously, a new deal will be needed by mid-summer, “but for now there is some breathing space for the sovereign and probably for the banks.”
Greek Banks – Deposit outflow situation
The Citi Research report points out that another approximately €15bn of deposits have been withdrawn from Greek banks so far this year, and a total of approximately €20bn since the end November 2014. Ghose and Tian estimate that the current deposits in Greek banks are around.€140-€145bn, a decline of cose to 12-15% from the end of November. The deposit outflow over the last three months is nearly a third as much as the massive 37% deposit outflow of 2010-12. They also note the “total stock of deposits has fallen below the June 2012 crisis low and we are back to c2005 levels.”
The analysts argue Greek depositors have withdrawn funds from banks because of heightened concerns over capital controls and the obvious potential for Grexit. They note: “We expect these concerns now to decline, albeit not disappear.”