In August, the low flight in new loan approvals continued, a trend that does not seem to change drastically until the end of the year, making it very difficult to achieve the credit expansion targets set by the banks' managements for this year.
According to Bank of Greece data, last August net credit expansion to the private sector, businesses and households, was negative by -401 million euros. In other words, new loans were less than the repayments of older loans.
More specifically, net loan flows (new lending minus repayments) in the eight months January - August 2023 amounted to EUR -1.794 billion, of which net flows to businesses were EUR -956 million to households EUR -689 million and to self-employed persons, farmers etc. amounted to EUR -148 million. It is noted that credit expansion to households has remained negative for more than ten years.
The low flight in new loan allocations has led to the landing of the credit expansion rate. Last August, the credit expansion rate to businesses and households stood at an anemic +0.9% compared to +6.3% in December 2023.
According to senior bank executives, the course of new loans is significantly below the expectations and targets set by the banks for 2023. They believe that it is with the current data that the initial targets will not be met and we are likely to see revisions to the target in the coming period.
According to bank sources, the slowdown in credit expansion is mainly due to large loan repayments made by many companies due to the sharp rise in interest rates. "It is not that we are not hitting our new loan targets, but what we did not expect was the large repayments of old loans, which is shaping this negative picture," a bank official said.
The increased repayments are also due to a technical reason: in 2022, due to the war in Ukraine, the energy crisis, disruption in supply chains and the large increase in raw material prices, large companies went for a large increase in working capital lending in order to have strong defences. Hence the jump in business credit expansion in 2022 at +12.3%.
In 2023, conditions normalised, the energy crisis eased, commodity prices fell and concerns subsided, making it unnecessary to maintain such high working capital. Especially after the sharp rise in interest rates which pushed up costs considerably.
In addition, the prolonged election period had a negative impact, which resulted in various investment projects being delayed.
Comfort in high profitability
The failure to achieve credit expansion targets is certainly a worrying element, but this poor performance has been offset by a strong increase in profitability due to higher interest rates and commission income.
It is noteworthy that in the first half of the seventh financial year, the interest income of National Bank, Eurobank, Piraeus Bank and Alpha Bank increased by +59.6%.
Thus, the low credit expansion does not seem to worry investors yet, nor does it seem to lead to a questioning of the banks' growth story. Investors are extremely satisfied with the banks' revenue performance and profitability, putting the weak performance in new loan production in the background.
Acceleration expected for 2024
Bank executives are optimistic that in 2024 the new loan production picture will improve significantly. The rate hike cycle appears to be coming to an end and the large volume of repayments is also expected to be completed within the year.
Thus, the new year will "run" without the repayment "cutter" while the recovery of the investment grade will have a positive impact on investment activity. In addition, there are many large investment projects that will enter the implementation phase and which will need capital support.
However, a serious source of concern is the level of interest rates, the prospect of them remaining high for a long period of time and the risk of stagnation or even recession in Europe and the US, a development that would not leave Greece unaffected.
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