Bank of Greece sees minimal direct exposure to Middle East counterparties - EXCLUSIVE
Direct exposures of Greek banks to counterparties domiciled in the Middle East are very low (less than 1% of total exposures).
This was said by the source in the Bank of Greece in an exclusive interview with CE Report.
Second round effects of the conflict could be more relevant for Greek (but also European banks) in an adverse scenario and could be manifested through lower demand for credit or higher NPL inflows. These second-round effects could materialise across a range of sectors to which Greek Banks are exposed, particularly energy-intensive industries, transport, construction, agriculture and certain segments of manufacturing accounting for a significant part of the loan portfolio. Vulnerable households could also be affected. However, note that the Greek banking sector has solid fundamentals and is now better placed than in the past to absorb potential shocks.
The Bank of Greece has the mandate to adopt macroprudential capital-based and borrower-based measures aimed at preventing the build-up of systemic risks and strengthening banking sector resilience. In this context, it closely monitors the impact of increasing external risks on the Greek financial system and regularly assesses the appropriateness of its macroprudential policy.
The current macroprudential strategy is focused on building up releasable capital buffers, mitigating moral hazard through adequate structural capital buffers for systemically important institutions, and promoting prudent credit origination standards. Specifically, the Bank of Greece has recently decided to raise the Countercyclical Capital Buffer (CCyB) rate to 0.5%, i.e. to the level of the Positive Neutral CCyB target rate, applicable from 1 October 2026. In addition, O-SII buffers continue to apply to systemically important institutions, while BBMs for loans secured by residential real estate, effective from January 2025, support prudent lending standards through LTV-O and DSTI-O limits.
Against this backdrop, banks are expected to continue ensuring the smooth financing of the real economy by applying prudent credit standards, making use of their strong liquidity and preserving their capital adequacy.
Overall, the Bank of Greece will continue to assess developments and take action if warranted, with a view to safeguarding financial stability and preserving the resilience of the financial system.
The non-performing loan (NPL) ratio has been steadily declining in Greece. In the past, this reduction was largely driven by securitizations under the Hellenic Asset Protection Scheme (HAPS – "Hercules"). In 2025, the NPL reduction was attributed to loan recoveries, portfolio sales, write-offs and credit expansion. As of December 2025, the ratio reached 3.3%, the lowest level since Greece joined the euro area (from 3.8% in 2024). On a consolidated basis and with a comparable definition, the NPL ratio for the four significant institutions in Greece stood at 2.5% compared with 1.8% for significant institutions in the Banking Union as of December 2025. The trend is expected to continue at a slower pace, supported by sustained credit growth, though geopolitical tensions and a potential increase in key interest rates warrant ongoing vigilance.
The recent improvement in profitability appears broadly sustainable, supported by the continued diversification of revenue sources beyond net interest income (NII). In particular, higher Net Fees and Commissions (NFC), driven by asset management and insurance-related activities, reflect the ongoing expansion of banking groups into more diversified fee-generating business lines. This trend has been reinforced by recent acquisitions of insurance companies and investment firms by banks. Additional support to profitability could stem from further NII strengthening driven by continued credit expansion and a potential increase in key ECB interest rates. The sustainability and strength of core banking revenues partly mitigate the inherent volatility in gains from financial transactions.
Regarding operating expenses, Greek banks have a very low cost-to-income ratio and ongoing digitalization initiatives are expected to contribute to operating efficiency gains mitigating the impact of increased wage pressure due to inflation.
Nevertheless, the outlook remains subject to heightened geopolitical uncertainty. A prolonged deterioration in the external environment could weigh on demand for new lending and adversely affect borrowers’ repayment capacity, leading to higher credit risk and potentially weaker profitability dynamics.
The outlook for the Greek economy remains favorable; however, the recent surge in geopolitical uncertainty is expected to dampen the growth momentum in 2026. According to the latest Bank of Greece projections, in 2026 the economy is expected to grow by 1.9%, while inflation is estimated to reach 3.1%. Risks to the Bank of Greece’s growth forecasts are mainly tilted downward and relate primarily to the ongoing international geopolitical tensions, particularly the war in the Middle East. Increased duration and intensity of the conflict are expected to adversely impact the domestic growth outlook. Nevertheless, the Greek economy is now better placed to absorb external shocks, owing to stronger fundamentals, structural reforms, and the accumulated experience from managing successive crises.
In the last couple of years, private sector credit growth has centered around large non-financial corporates with sound fundamentals and, in many cases, international subsidiaries or export-orientation. Hence, geopolitical uncertainty may dampen credit growth to non-financial corporates. The need to absorb the Recovery and Resilience Fund (RRF) related lending in the next two years is expected to mitigate the impact of geopolitical uncertainty on business investment and credit growth.
Regarding households, the recent recovery in mortgage disbursements, after 15 years of deleveraging, is anticipated to continue, underpinned by government housing policy schemes, again co-funded by RRF programmes.
Nonetheless, legacy non-performing private debt remains an issue. Although banks have drastically reduced NPLs, a large volume of non-performing debt outside the banking sector remains unresolved, preventing many households and businesses from accessing new bank financing.
Finally, another challenge relates to the structure of the business sector, as a significant number of businesses are small and medium enterprises (SMEs) and loans to small businesses and professionals (SBLs) with limited scale, less strong financial profiles and increased reliance on domestic demand. This constrains their bankability and limits their access to financing.
Photo: Bank of Greece
This interview was prepared by Julian Müller
