Greek bank flight accelerates; deposits slump to lowest since 2001

Oh no. The Greek bank deposit flight chart is back.

Mounting concern over the state of Greece’s bailout programme is hurting the country’s beleaguered banking system, which suffered its second consecutive month of deposit outflows in January.

Greek businesses and households pulled €1.53bn of deposits from banks in January compared to December, pushing the financial system’s total deposits to the lowest since 2001 at €119.75bn, according to figures from the Bank of Greece.

It follows on from €3.4bn in desposit flight in December, making the two monthly drop the worst since the height of the country’s bailout woes in July 2015.

The resumption of cash withdrawals reverses a fragile stabilisation in deposits seen after Athens agreed a new three-year bailout programme that bought it back from the brink of default in the summer in 2015.

But conflict between Greece’s creditors in the EU and IMF have marred a tentative economic recovery, with the jitters also being felt in the banking system.

Greece’s economy contracted by 0.4 per cent in the last three months of 2016 – a period which coincided with a setback in its rescue programme after prime minister Alexis Tsipras made a series of unannounced government spending plans that irked creditors led by Germany.

As it stands, Athens is waiting for creditors to sign off on its bailout progress in order to unlock its latest round of bailout cash, estimated at around €6bn. The country will need the cash to make a series of debt repayments due in July.

Bailout monitors from the EU and IMF have returned to the country this week to begin their assessment of the reforms demanded as part of the €86bn programe (read more from the FT’s Jim Brunsden here).

But the major divisions are between the Brussels and the IMF rather than with the left-wing Syriza government. The Washington-based Fund wants EU creditors to grant Greece bolder debt relief in order to facilitate its return to the international bond markets after its bailout ends in 2018.

Greece’s banking system still labours under the capital controls the government was forced to impose in the summer of 2015 to staunch cash flows from banks. The banking system is also crippled by the worst bad loan pile in the eurozone at over 70 per cent of total assets.

In the absence of a major deadline until July at the latest, Ruben Segura-Cayuela, Europe economist at Bank of America, thinks the standoff between the EU and IMF could eventually be resolved with “a new programme with no or minimal IMF involvement”.

Delays in agreeing a compromise are also holding the economy back from participation in the European Central Bank’s stimulus measures which have been in place for two years.

The ECB has said it will not consider Greek bonds under its purchase programme until creditors have resolved their differences over the country’s debt sustainability and Athens passes its second bailout review.

As it stands, the ECB is on course to taper its bond buying by €20bn a month from April and wind down the programme altogether in December.