Moody’s: Greece’s bad-loan front remains open

International rating agency Moody’s describes Greece’s credit conditions as a thorn in the side of Greece’s credit rating, as while they have improved in recent years, they remain negative, with significant challenges on the lending front affecting the prospects of the economy and banks.

Despite the fact that banks have offloaded these nonperforming exposure (NPEs), they continue to remain in the system, while new loans are being issued that have not been tested in the economic cycle, as it points out.

Moody’s notes that credit conditions in Greece, which it rates as negative, have improved in the last three to four years, with a significant reduction in banks’ NPEs, which, however, remain higher than those of European bonds.

As it says, banks’ NPEs have decreased to 6 billion euros, or 3.8% of total loans (according to March 2025 data), from €47.2 billion (or 30% of loans) in December 2020.

Nevertheless, Moody’s points out that approximately €78.3 billion of nonperforming loans, which concern both households and businesses, remain in the hands of servicers and therefore affect the overall assessment of credit conditions in Greece.

The significant reduction in total credits reflects the removal of non-core assets from banks’ balance sheets, the securitization/sale of NPE portfolios and write-offs, Moody’s says.

Greek banks, however, have started to grant new loans, aiming to capitalize on the economic recovery and the positive effects of the Recovery Fund. According to the Bank of Greece, the net credit flow between June 2024 and June 2025 was significant, around €12.6 billion, it said.

“However, this new lending to the real economy, which mainly includes corporate loans as households continue to deleverage, has not yet been tested in a full economic cycle. This factor leads to the negative adjustment to our assessment of credit conditions in Greece,” Moody’s notes.

The agency, however, estimates that any potential risks to vulnerable borrowers are expected to be offset by the resilience of the business sector and new loans related to Recovery Fund projects, which will help banks’ performing loan portfolios continue to expand.