Greece: Financial Sector Assessment Program-Technical Note on Systemic Risk Analysis

This paper presents a Technical Note on Systemic Risk Analysis for the Greece Financial Sector Assessment Program. The Greek financial sector has undergone a profound restructuring, characterized by consolidation, strengthened capital positions, and a substantial decline in nonperforming loans on bank balance sheets. The Greek financial system remains small by European standards and is highly bank-centric, with increased concentration following post-crisis consolidation. Bank profitability has strengthened markedly since 2022, reflecting high net interest margins, declining loan-loss provisions, lower operating costs, and a sharp reduction in nonperforming loans, bringing capital ratios broadly in line with European averages. Benefitting from recent robust economic activity, the corporate sector has improved its profitability and shows resilience in stress tests. It is recommended that the Greek authorities leverage the current benign environment to encourage banks to strengthen the quality of their capital and to foster a more diversified financial sector.