Moody’s on Greek Institutions, Banks, Warns of Demographic Problem

The macroeconomic profile also reflects Greece's improved credit conditions, which are still characterized by high levels of non-performing loans (NPLs) compared to the European sector.

Moody’s ratings agency rates Greece’s macroeconomic profile (positive Ba1) balancing the country’s relatively high per capita income compared to its peers, also pointing to its robust growth potential.

The strong momentum in the country’s structural reforms is one of Moody’s key points for the positive outlook. However, the firm acknowledges its sensitivity to political risk, due to its exposure to geopolitical threats as a NATO member, particularly in relation to the war in Ukraine. After the June 2023 election results, which secured a second term for the conservative New Democracy party, Moody’s considers the domestic political risk to be low.

The macroeconomic profile also reflects Greece’s improved credit conditions, which are still characterized by high levels of non-performing loans (NPLs) compared to the European sector. Through transformation plans, Greek banks have reduced non-performing exposure (NPE) ratios to mid-single digits and are focusing on strengthening their core profitability. Moody’s notes that newly issued loans have yet to be tested across the economic cycle, while a significant number of NPEs outside the banking system continue to weigh on credit conditions.

The financing and liquidity of Greek banks are benefiting from an increase in deposits, while funding facilities from the European Central Bank (ECB) are being reduced. Greek banks are also tapping into international capital markets to raise debt to meet the minimum requirement for own funds and eligible liabilities (MREL) by the end of 2025. Moody’s adds that the current structure of the sector does not present significant challenges for banks’ financial performance.

Greece also faces an extremely unfavorable demographic profile due to its aging population, which has been worsened by the emigration of a large portion of its young and well-educated population during the crisis years. The share of the working-age population within the total population is projected to shrink by nearly ten percentage points by 2050, according to Eurostat forecasts. This is the primary reason behind Greece’s comparatively weak long-term potential growth rate of 1.1% for the period 2022-2070, as predicted by the European Commission in its 2024 Ageing Report.