European banks are better positioned to manage a Greek exit although periphery banks remain vulnerable to risks, according to ratings agency Moody’s.
Since the election of anti-austerity party Syriza in January, the risk of Greece leaving the European Economic and Monetary Union has escalated.
Although a Greece exit is still not Moody’s baseline scenario, the ratings agency considers that ‘euro area’ banks are better prepared to weather such a scenario than at the height of the crisis.
Sean Marion, a managing director in Moody’s London-based banking team, stated: “Broad improvement in euro area banks’ financial conditions and an associated stabilisation in the region’s economic environment has made banks more resilient to external shocks than was the case during the height of the euro area crisis.”
Additionally, risk of restricted market liquidity, or ‘contagion’, is also lower than three years ago, investor confidence has been bolstered by a gradual return to economic growth across the region and policymakers have an increased number of tools that can be deployed as a backstop in the event banks’ access to market funding were disrupted.
However, Moody’s report also notes that banks in other periphery countries - Cyprus, Ireland, Italy, Portugal and Spain - are still vulnerable in the event of an exit scenario.
Mr Marion added: “Banks in the periphery markets have strengthened their financial positions in recent years.
“But, legacy issues from the previous crisis still weigh on their ability to return to full financial health, while they are also more susceptible to restricted market access and higher cost of wholesale funding in the event of an adverse shock, given their more limited balance sheet flexibility.”
Greece is due to pay about €1.5bn (£1.1bn) to the International Monetary Fund by the end of this month, but its current bailout programme totals about €7.2bn (£5.2bn). Earlier in June, Greek prime minister Alexis Tsipras told the IMF they would not pay a planned €300m (£218.7m) loan instalment and instead proposed bundling several payments.
The tussle between Greece and its creditors spooked markets, with yields on German bunds reversing dramatically from 0.5 per cent to nearly 1 per cent for 10-year debt.
peter.walker@ft.com
