Greek banks face scrutiny over shipping loans and credit quality

The European Central Bank’s Single Supervisory Mechanism (SSM) is expected to deliver its final observations to Greek banks on November 19, concluding this year’s Supervisory Review and Evaluation Process (SREP), a key assessment of their financial strength, risk exposure and ability to withstand future challenges. Despite strong capital positions, profitability and progress in reducing non-performing exposures, Greek lenders face scrutiny over the quality of their expanding loan portfolios and potential vulnerabilities, according to a report by Greek financial news outlet Newmoney. The assessment is expected to examine shipping loans, corporate lending concentration, bond portfolios, liquidity management and deferred tax credits, alongside dividend policies. Loan quality remains a central concern, particularly as higher borrowing costs continue to weigh on households and businesses. The SSM is expected to examine individual portfolios rather than relying solely on overall non-performing loan ratios, with particular attention to step-up mortgages transitioning to full principal-and-interest repayments, which could increase borrowers’ monthly instalments. Shipping finance is another area of concern. Although Greek banks consider the sector underfunded and see room for further lending, the supervisor is expected to question whether loan assessments adequately account for the possibility of lower freight rates. The SSM will also examine whether banks are sufficiently diversifying new lending, avoiding excessive exposure to individual companies or sectors. Bond portfolios will be assessed for potential losses arising from changes in yields and market conditions, as well as the effectiveness of internal monitoring and stress-testing systems. Banks are also moving towards greater autonomy over shareholder distributions, with the prospect of paying dividends without prior specific supervisory approval, provided relevant conditions are met. However, the SSM is expected to stress that dividend policies must remain prudent and preserve sufficient capital for future lending and unexpected risks. The gradual reduction of deferred tax credits (DTCs) will also remain under scrutiny, given their importance to the quality of regulatory capital. The SREP assesses banks across four pillars, covering business model sustainability, internal governance and risk management, capital adequacy, and liquidity and funding. Each is generally scored from one, the strongest rating, to four, the weakest. The process also determines any additional Pillar 2 capital requirements deemed necessary, providing supervisors with an assessment not only of banks’ current positions but also their resilience to future economic and market pressures.