BoG recently released its 2016 financial statement, posting a total of €1.09bn in profits with close to €1.5bn in net interest income, slightly lower than the relevant figures during 2015. In light of this I would like to take a quick look into the annual developments in the major components of its balance sheet.

During 2016, total lending to Greek banks (defined as the sum of MROs, LTROs and Other Claims) dropped from €107.5bn in December 2015 to €66.6bn at the end of 2016, a fall of roughly €41bn (a figure close to 25% of GDP or equal to annual goods imports for the Greek economy). Other Claims (ELA) played a significant role with an annual decrease of €25.2bn.


The fall was driven to a large part by a fall in liabilities towards the Eurosystem, both for Target2 liabilities and extra banknotes:


Yet the total fall in Eurosystem liabilities was much lower than the decrease in bank lending, an adjustment of €28.4bn:


The main reason was the significant increase in securities held for monetary purposes which increased from €20.7bn at the end of 2015 to a total of €42.5 in December 2016 (a change close to €22bn). Obviously this increase was the result of purchases by BoG in the context of the ECB QE program. As the ECB itself has acknowledged, a large part of QE securities purchases involve cross-border transactions which result in a corresponding increase of Target2 liabilities. As a result, Target2 balances cannot be used as a useful capital flight tracker anymore since they correspond to legitimate transactions in the context of QE.

Total collateral dropped from €189.2bn to €131.7bn in December, a figure still two times larger than the total debt securities held by Greek banks or roughly 2/3s of total credit claims held by the Greek banking system.

Overall, 2016 was a year of relative stabilization although the BoG balance sheet still reflects a substantial amount of stress present. The presence of capital controls acts as a first line of defence to any amount of capital flight while QE is destined to increase both BoG balance and its liabilities towards the Eurosystem. Moreover, while securities held for monetary purposes were only 22% of Target2 liabilities during December 2015, they have now climbed close to 60%. As a result, in the event of Grexit, a large part of the Target2 (negative) balance could be settled immediately with a transfer of securities and a corresponding fall of the BoG balance sheet. The amount not covered by securities is now close to €30bn and seems destined to fall in 2017 as well.