ATHENS Jan 15 Greece's banking system will have
a limited capacity to expand credit in the short term and
businesses must look to capital markets and other sources to
make up for the financing gap, the country's central banker said
Bank credit to the private sector has been in decline since
2011, aggravating Greece's six-year economic slump. The
prospects of a mild economic recovery this year will largely
depend on new lending.
"The tightness in financing is today one of the most serious
problems. It expands the number of firms that are forced to
curtail activities, thus intensifying the recession," Bank of
Greece Governor George Provopoulos told an economic conference.
"The capacity for credit expansion will remain limited in
the short term. This crunch can be offset by raising funding
from alternative sources," he added.
Greece's battered economy, about a quarter smaller after a
six-year depression which has driven unemployment to almost 28
percent, is expected to grow by 0.5 percent this year according
to the central bank.
Provopoulos said Greek firms faced substantially higher
borrowing costs compared to peers in the euro zone, and banks
were not eager to extend credit until their potential capital
needs were clarified after a second round of stress tests.
Greeks' borrowing costs have climbed to their highest level
since the country joined the euro area in 2001, despite record
low ECB benchmark interest rates. Real interest rates have hit
about 8.4 percent in November, according to central bank data.
Greece's economy is the most dependent on bank lending in
the euro zone. Bank credit to the private sector made up about
40 percent of total funding in 2000-2008 compared to 33 percent
across the single currency club.
The remainder came from capital markets and EU funds.
Provopoulos, also a European Central Bank Governing Council
member, said Greek banks' reliance on Eurosystem funding had
come down by about half from 140 billion euros at the peak of
the debt crisis.
He said banks' lending policies needed to support companies
involved in exports and avoid trends followed in the last decade
when a big part of credit financed consumption and residential
(Reporting by George Georgiopoulos)