Markets may be pricing in a short-lived Middle East conflict, but in a scenario where the war is prolonged, which cannot be ruled out, Greek banks will face serious pressure on their business plans and financials, while a new wave of nonperforming loans is likely, which will derail their prospects, Moody’s told Kathimerini.
Banks, according to the agency, will not face an immediate deterioration in solvency from the primary effects, but secondary risks would increase in the event of a prolonged disruption as they would be exposed to weaker economic activity, reduced investor sentiment and potential liquidity pressures.
As Nontas Nikolaidis, vice president and senior executive of Moody’s bank credit ratings, explains to Kathimerini, if the conflict is short-lived, there will be no serious impact on Greek banks.
Fitch’s estimates are similar, according to which a short conflict will not change the assessment of the operating environment of Greek banks, as they have little exposure to the region and thanks to their size they can absorb any possible short-term impacts.
In a scenario of prolonged war, however, the prospects for Greek banks change significantly. As Nikolaidis explains, “a prolonged conflict in the Middle East is likely to have secondary effects on the Greek economy.”
According to the analyst, these arise from the following developments: “First, from increased energy prices and inflationary pressures from the disruption of shipping through the Strait of Hormuz. Second, from the deepening of global risk aversion and possibly creating broader pressure on credit spreads in high-yield markets. Third, from the increase in refinancing risks for issuers with short-term maturities, especially in energy-intensive and cyclical sectors that already face high input costs. And fourth, this would also complicate the path of interest rates and decision-making by central banks.”
He adds, “the above is likely to negatively affect the growth plans of Greek banks, their financial performance and possibly form a new wave of nonperforming exposures.”