21Α Amerikis Str., GR
106 72 ATHENS
Tel: +30 210 338 65 00
In 2020 the recovery path of Greece was disrupted by the sanitary crisis of the new Covid-19 virus which caused an unprecedented shock at global economic and social level and interrupted the positive momentum of the country. Greece was seriously hit by the pandemic since tourism, one of the most important sectors of the Greek economy, was heavily impacted. This, in addition to the suspension of the operation of a large number of enterprises for a long period of time during the second and the fourth quarter of the year, resulted in a deep contraction of the economy as shown by the 8.2% drop in the Greece’s GDP.
As an immediate response, the Greek government timely activated a generous package of fiscal and liquidity measures, in order to support the mostly affected for enterprises, especially small and medium ones, and employment in various sectors impacted by the crisis. The deferral of tax payments for affected businesses and employees, a ‘special purpose’ compensation for specific professionals and affected business owners and a wide range of financial State Aid measures for businesses were some of the state initiatives adopted. The total amount of fiscal and liquidly measures exceeded 10% of GDP in FY2020 (excluding indirect effects and bank leverage of State guarantees) following the activation of additional supportive measures in the second semester of 2020 due to a new deterioration in epidemic conditions. Overall, the package of economic support measures (fiscal, tax deferrals and liquidity) deployed in 2020, amounted to € 23.1 billion or 13.9% of GDP. The fiscal cost of these measures, without taking into account liquidity measures, amounted to a total value of € 11.6 billion, or 7.0% of GDP.
Also, a number of public and private moratoria in the banking sector were announced in light of the pandemic including, inter alia, the deferral of the repayment of loan principal by individuals and for performing business loans (both announced by the HBA), and the temporary suspension of payment of any instalments due pertaining to the out of court settlement and the primary residence protection regime.
As a result of the above, government deficit climbed to 9.7% in 2020 from 1.1% in 2019, while government gross debt increased to 205.6% from 180.5% in the previous year. As vaccination rates increase and the economic situation gives the green light to the easing of the emergency fiscal measures, debt indicators are expected to return to lower rates not earlier than 2022. Unemployment rate slightly decreased as of previous year to 16.3% from 17.3%, while private consumption sunk by -5.2% year-on-year following an increase 1.9% in 2019. The Harmonised Index of Consumer Prices (HICP) declined by-1.3% from 0.5% last year. However, the significant amount of savings that was accumulated throughout the previous period could be the base for further spending and investment going forward as Covid-19 related uncertainty fades.
The structure of the Greek banking sector remained broadly unchanged: the credit institutions incorporated in Greece are 15, of which nine are commercial and six cooperative banks. Of the nine commercial banks, only four are deemed “systemically significant credit institutions”, according to the respective SSM definition. Currently, 22 foreign banks operate in Greece with local branches, out of which 20 (2019: 18) branches of credit institutions are incorporated within other EU Member States and two branches of banks incorporated within third countries (2019: 3). The share of the five largest credit institutions in total assets reaches 97% (2019: 97,3%) of the banking system. In total, the number of banks’ branches was 1,702 (2019: 1,834), while the number of employees is 33,097 (2019: 36,727) and ATMs 5,797 (2019: 5,702).
At the field of NPLs reduction, banks’ efforts to reduce the high stock during 2020 have advanced rapidly. According to the Bank of Greece, at the end of 2020, NPLs amounted to €47.2 billion, decreased by 25.9% from previous year-end. The target of a one-digit ratio would be further pursued the following years, mainly due to the hive down projects of the majority of the systemic banks and the securitization initiatives of most of them backed by the Greek government asset protection scheme (Hercules I & II). This target could be accomplished without taking into account the possibility of newly created NPLs when support measures are phased out which, however, are reported to have been less than initially feared.
Despite the extreme levels of uncertainty, the Greek banking sector remained resilient and adequately capitalized. Supervisory authorities’ flexibility in terms of debt moratoria and ECB’s decision to allow the inclusion of GGBs into the PEPP scheme, allowed the Greek banks to overcome the challenges and to continue financing the economy uninterruptedly. Capital adequacy ratio, although declined from 17.3% in 2019 to 16.6% in 2020, it remained satisfactory, while Common Equity Tier 1 ratio declined to 14.9% from 16.2% in 2019.
Despite the insisting uncertainty concerning the evolution of the pandemic and the impact it might have on the revenues from the tourism sector and the solvency of firms after support measures phase out, the ongoing progress in vaccinations and the launch of the National Recovery and Resilience Plan Greece 2.0 are expected to boost confidence and spending, supporting a strong turnaround in GDP in the immediate future.
Contributor: Anna Vasila email@example.com