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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.

Bank of Greece recently released its balance sheet statement and profit & loss account for the year 2015. One important observation is the significant increase in its profits which totaled €1.16bn compared to €654mn during 2014. I have already commented on this profit flow in my post on the November balance sheet. Assuming a spread of 150bps over the MRO (which is paid to the Eurosystem by BoG) on ELA financing the cumulative profit flow during 2015 was €1073mn, a figure quite close to the total profit for that year.

In terms of bank lending, total bank loans and ELA outstanding are now back to March 2014 levels at €107.5bn and €68.9bn respectively. Nevertheless, this level of financing is supported by a much higher figure for collateral which stands at €189.15bn instead of €177.59bn in March, a fact which signifies the quick deterioration in quality of Greek bank assets (total collateral for December are only €16bn lower than their peak during 2015). This figure is close to 2/3 of their total primary assets (debt securities and credit claims) or more than 85% of credit claims (before provisions). Given the large non-performing exposure of Greek banks it is clear that most of their assets are already encumbered as collateral towards BoG.

One important development that seems to have gone unnoticed is the large increase in securities held for monetary purposes by BoG (as part of ECB’s QE) which have risen from €5.8bn in December 2014 to €20.7bn, although ‘Other Securities’ registered a drop of €6.2bn from €25.27bn to €19.05bn. As a result total ‘ Securities of euro area residents denominated in euro’ increased €8.7bn. Nevertheless, securities held by Greek MFIs did not move much during 2015 which means that any BoG purchases were performed abroad and (all else equal) should lead to a rise in Target2 liabilities. This is confirmed by the fact that ‘liabilities towards the Eurosystem – Bank Lending Operations’ reached a figure of €6.5bn in December while it was in negative territory until January 2015.

Bank of Greece Balance Sheet items during 2015.jpg


Given that securities purchases will continue during 2015 we can expect to observe a further change in BoG balance sheet mix with a larger part of Eurosystem liabilities being financed by securities rather than bank loans, something which will obviously change its net income flows significantly. Whether these purchases will lead to an increase of Target2 liabilities or not will depend on broader developments within the economy and private capital flows.

BoG published its November 2015 balance sheet data which makes it a good opportunity to look into recent developments.

BoG - Balance Sheet - Jan - Noc 2015

Compared to the peak during June, liabilities towards the Eurosystem (Target2 + extra banknotes) have decreased substantially from €130.5bn (more than 70% of Greek GDP) to €117.8bn which is still a very high number. Almost all of the fall was driven by the €10.5bn reduction in Target2 liabilities.

This improvement of BoG’s net liability position was reflected on bank borrowing which fell from €126.2bn to €113.4bn. Most of the change is attributed to lower ELA which is down €9.3bn but still stands at May levels.

An interesting side effect of large ELA bank borrowing is the fact that BoG earns around €100mn monthly from the (assumed) 150bps spread over the MRO rate. As a result it has already accumulated profits probably close to €1bn from these operations. These profits will clearly prove quite helpful for the 2016 budget execution although they represent a ‘windfall flow of income’.

Lower loans from the BoG mean that banks can free up a part of the collateral they have been posting to the central bank with total collateral being almost €14bn lower than its peak during the summer. Given the fact that Greek banks already have €10bn less assets than during January while NPLs are still on an upward path this development is more than welcome. Especially since the total of debt securities and credit claims (before provisions) on their balance sheet is only a total of €288bn. Taking into account NPLs it is evident that Greek banks were already very thin in available collateral during the heated summer standoff between Greece and its creditors.

Lastly, one other positive news item is the fact that the government account at the BoG now holds more than €5bn. Since for the next months the remaining Greek debt obligations are quite contained it stands clear that the Greek government has some leeway to not try and conclude the first quarter negotiations (which contain some of the most difficult parts of the package such as pension reforms) without giving a fight. Specifically, it has to pay €1.2bn to the IMF in December and €1.4bn during the first quarter.

Just a small post on the newly released June monthly statement by BoG:

BoG monthly statement June 2015

The large increase in central bank lending to Greek banks is quite evident: BoG loans were used to finance increased banknotes hoarding (+€5bn in a month) and deposit outflows (+€7.5bn). This increase stretched posted collateral which reached close to €200bn. Given that debt securities and credit claims held by Greek banks amount at a bit less than €300bn (with around €18bn being securities in currencies other than the Euro) with a significant part encumbered in various covered bonds and other securities it is obvious that banks were running out of available collateral and capital controls were really around the corner as long as ELA financing needs did not decrease. Obviously the increase in haircuts at the 6th Jule meeting only made matters worse. Based on the above numbers it is clear that it will be extremely difficult to relax capital controls without cash/deposits returning to the Greek banking system.

Another interesting observation is the extremely low figure for the government account which amounted at only €600mn. This reflects the large effort by the Greek government to keep paying official creditors during 2015 and the slow deterioration of state finances due to the ongoing recession. Since ELA was capped before the end of June the above figure suggests that the Greek government was in no position to pay the IMF on 30 June even if it wished to do so (since it could only use funds available at the BoG). Its financial position was extremely stretched and it would have to quickly decide whether to resist creditor demands by issuing IOUs or accepting the terms of a new bailout.

Even if government entities still had funds in bank accounts that could be tapped by the central government, the ELA cap made transferring them to the government account held at BoG close to impossible. These funds might be able to help in domestic payments to government employees and pensioners but would not allow paying (principal and interest on holdings of) foreign debtholders making Grexit very likely in order to avoid a general default on government debt.

One last issue that I don’t see people touching often is the fact that the very large ELA amount will result in significant windfall profits for BoG during 2015 which will be remitted back to the government. Assuming an ELA spread of 150bps over the MRO rate (BoG has to pay the MRO rate on its liabilities towards the Eurosystem), BoG should have already earned an amount close to €450mn in profits (although a part will probably be set aside as provisions). These profits might prove significant for the 2016 state budget execution.

Bank of Greece Balance Sheet

Bank of Greece released its balance sheet for October 2013:

Bank of Greece Balance Sheet Oct 2013

One has to acknowledge that the data point to a relative stabilization. MRO borrowing was lower €1.3bn while ‘Other claims’ dropped about €1bn. This was reflected in both the Target2 (-€2.7bn) and banknotes (-€0.3bn) liabilities. Although haircuts remained relatively stable, the €1bn fall in ELA contributed to a fall of €12bn in posted collateral.

Current Account

Bank of Greece also released data on the September current account. Looking into various categories a few clear conclusions are:

  • The trade balance is still driven mainly by fuel imports and exports with exports higher by €0.64bn in the first 9 months and imports down €1.5bn for an overall improvement of more than €2.1bn.
  • Other goods exports are showing considerable signs of weakness with the total increase in the first 3 quarters being only 3.6%. Imports actually increased in September compared to one year ago, probably due to the stronger tourist wave. It seems that other goods might end up posting only a marginal total improvement during 2013.
  • Tourist revenue has been the main sector posting healthy growth this year. They increased €1.34bn although transport revenue was lower €1.13 leaving the total services income only slightly higher (+€0.2bn or +0.9%).
  • What is quite worrying is the fact that profit/interest/dividends payments abroad are already higher than last year both for the 9-month period and September. The PSI effects are over and interest payments are again a drug on economic growth.
  • EU receipts have played a major role in improving the current account with funds being higher by €1.63bn.

In general, although a few sectors show considerable strength (mainly tourism and oil exports), other goods exports are stalling while import contraction has reached its limits and cannot provide any further relief. Given the above trends it seems that the external sector will not be able to assist during the final 2013 quarter and won’t be the growth engine for 2014.

It’s been a rather long time since I last took a look into developments in Euro area central bank balance sheets so it is a good opportunity to do an update.

General Trends

First, here’s a table (source eurocrisismonitor) with the Target2 balances for the major Euro area NCBs. What is quite evident is that during the second half of 2012 and the start of 2013, Target2 balances were reduced significantly, with the pace slowing down considerably in the last few months. Current levels seem to mostly be a function of current accounts (surpluses) rather than actual financial flows. Especially Germany has stabilized around €575bn with Spain and Italy at €280bn and €210-230bn (for a total of nearly €500bn).

Euro NCB Aug 2012-2013


The above stabilization is clear if one looks at the detailed data of the Spanish NCB (BdE):

BdE Balance Sheet Aug 2013

Lending to MFIs through MRO/LTRO has stabilized since May something reflected on the Target2 net balance. During the start of 2013, the drop in refinancing operations was accounted by the reduction in the deposit facility from €47.4bn in January to €3.1bn in June. This should be considered a positive development since it probably reflects the fact that Spanish banks do not need any large liquidity buffers any more and are able to more actively use private money markets. Nevertheless, current Target2 figures seem to be quite sticky with current(+capital) account balances driving any changes.


Bank of Greece actually provides quite detailed monthly financial statements which can be used to draw important conclusions:

Bank of Greece Balance Sheet Aug 2013

During 2013, the main BoG asset categories have been on a downward trend, although the pace is rather slow with a reduction of close to €10bn in the Jun-Aug period. The positive fact is that this decrease has been driven by lower demands of ELA, which has dropped from over €30bn in January to a bit less than €12bn currently. The main counterpart of the reduction has been the Target2 balance which went from €87bn in January to €54bn in August, a result of various factors such as the current account surplus of recent months, inflows from the Greek Loan Facility and some inflows of private deposits. Banknotes have not exhibited any significant changes.

On the other hand, data on collateral haircuts is quite disturbing. Collateral only dropped from €219bn to €188bn, with the overall haircut increasing from 51% to 61%. This is mainly reflected by ELA which currently carries a haircut of close to 90%! Given the current size of MRO (€61bn), its haircut (25%) and current securities holdings of Greek MFIs (close to €77bn), it seems that Greek banks have posted most of their securities holdings as collateral for ECB regular refinancing operations while keeping credit claims for ELA. Current ELA collateral is close to 50% of the loans registered on their balance sheets as assets.

The 90% haircut is obviously very worrying for two reasons. First, it means that the ability of Greek MFIs to cover any liquidity shocks (due to a capital outflows scenario for instance) is quite limited: At 50% haircut they should be able to provide collateral for additional €60bn in liquidity while the current 90% haircut will limit them to only around €10-15bn. Secondly, haircuts of this size, cast doubt on the asset quality of posted credit claims. If Bank of Greece only accepts collateral at 10% of its face value, that fact should provide a hint of what the correct recovery rate is for the relevant loans (in case of debtor defaults). In general, it seems that current asset quality of Greek MFIs is extremely low while Target2 liabilities are still quite high.

Since the governor of the Bank of Greece asserted that almost €20bn in deposits have returned to the Greek banking system, I ‘d like to take a brief look at recent deposit developments, based on the relevant BoG statistics.

If one takes a closer look at deposits breakdown the data show that, since June 2012:

  • Government deposits have increased by €8.8bn, mainly due to inflows from the EFSF loans.
  • Domestic private sector deposits have increased by €13.5bn.
  • Non domestic residents deposits fell €6.5bn (almost €4bn since January).

Using the ‘liabilities to the Eurosystem due to banknotes’ component of the monthly BoG financial statement the result is that almost €10bn   of the increase in private deposits can be attributed to a reduction in banknotes held by the general public. As a result, it seems that only limited actual deposits inflows from abroad have happened, which were negated by the outflow of deposits of non residents. All in all, since June 2012 total deposits grew €15.9bn, a bit less than the effect of EFSF loans and lower banknotes demand combined.

Although Greek households have returned ‘vault cash’ back to banks, the same does not seem to have happened to deposits held abroad. Since current ‘excess’ banknotes are close to €12.4bn, any reduction in Eurosystem liabilities for the Greek banking system in the future will be limited.

It’s been a rather long time since I last took a look at central bank balance sheets so I think it would be interesting to see where we stand, especially in the case of Greece:

BoG - Dec2012 - Feb2013

Since 2012, the ECB started to accept Greek collateral in its regular refinancing operations which allowed Greek banks to move a large part of ELA loans (paying high interest rates around 3%) to the ECB MROs. Moreover, the fall in banknotes demand continued, lowering the corresponding Eurosystem liability by €2.3bn while the new loan package (which included cash to be used by the Greek government to pay arrears) and a return of deposits back home lowered Target2 liabilities by €20.2bn to €78.14bn (40% of 2012 GDP). As a result, total bank lending dropped by €24.81bn while also lowering their costs of funds significantly (although there was a €5bn increase in time deposits in the corresponding period).

The last fact is evident in the effective haircuts applied on posted collateral (calculated simply as 1 – loans/collateral). Regular refinancing operations have a mean haircut of 22% (the debt buyback probably played its role since it allowed Greek banks to swap Greek bonds with high quality EFSF notes), making the effective lending rate close to 1% while ELA financing has a haircut close to 80% (assuming that all of ‘Other Claims’ are ELA loans) with an effective rate of.. 15%. What is rather worrying is the fact that collateral posted on ELA was rather steady despite the 80% drop in its usage, increasing the effective haircut from 47% in December to 82% in February. Greek banks have probably posted very low quality credit claims as collateral (with their best assets held for the ECB MROs), leading to large haircuts and asset encumbrance.

Since the Greek banks asset quality is not destined to improve any time soon (rather the NPL share will probably increase further), it is very important that the positive developments in the Eurosystem liabilities (banknotes and Target2) continue. Total collateral posted (€212.75bn) is still very high, especially compared to total assets available (€240bn in loans after provisions and €76bn in securities – €23bn in securities of countries outside the Euro area). The Greek banking system remainsl on a fragile balance.

BoG recently released its November 2012 financial statement.


Regular refinancing operations were even lower in November, registering at €5.6bn (compared to €6.52bn during October). The fall is mainly attributed to lower MRO lending towards credit institutions. A large part of the fall reflected an increase in ELA which increased €0.5bn to a total of €123.3bn (more than 60% the projected 2012 GDP). Nevertheless, posted collateral (not including collateral covering regular operations) fell from €246.64bn to €245bn which should reflect higher prices in certain bank assets such as the post-PSI bonds.


Bank reserves increased during November from €1.77bn to €2.35bn (current accounts + deposit facility). This should be attributed to lower demand for banknotes which brought the 9.2 figure down to €15.04bn (from €15.49bn). The general government account was lower at €3.36bn (from €4.32bn in October) while Target2 liabilities were roughly unchanged at €108.46bn.

It seems that still only resident developments are having an impact on BoG balance sheet, with banknotes being the primary factor (after a large increase during the summer elections). Greece remains decoupled from the developments in the rest of the periphery where Target2 liabilities have fallen significantly due to a return of foreign capital.

The December bond buyback should have a large impact on the BoG balance sheet since banks will replace ELA financing (collateralized by Greek government bonds) with regular financing (collateralized by EFSF Bills). The ECB should also accept Greek government guaranteed securities in its operations again which should push ELA much lower and allow Greek banks to refinance at lower costs. A €1bn fall in ELA should provide an annual reduction of close to €20mn in financing costs. In the short-term, this reduction will be reflected in the remaining weekly ECB financial statements.

From a trading perspective, it is highly possible that future Greek T-Bill auctions will achieve lower rates.

BoG released its October 2012 balance sheet today. I commented on an increase in ‘Other Claims’ in the ECB weekly statement during October before and now it’s the time to point at the ‘guilty’ NCB which is the BoG. During October, ‘Other Claims’ increased to €122.79bn compared to €100.64bn in September (a change of €22.15bn) with regular refinancing operations dropping €23.74bn. Fortunately, collateral posted to BoG did not increase. Other than this, Intra-Eurosystem liabilities moved a bit, with Target2 liabilities increasing to €108.4bn (+€0.56bn) while liabilities related to banknotes decreased by €0.94bn to €15.49bn. It seems that funds are still exiting the country while confidence by small retail customers is a bit higher, leading to a small return of banknotes back to deposits (deposits increased by almost €1bn during October, a figure which matches the drop in banknotes). The fact that Greece is the only country in a bailout program where Target2 liabilities have not dropped significantly is a sign of stress.