Fitch stated that political uncertainty in Greece raises liquidity and funding risks for banks.

However, the rating agency noted that potential liquidity strains should be manageable since the banks are better prepared to withstand deposit outflows compared to the June ’12 elections , as long as access to Eurosystem facilities is maintained. 

Fitch estimates deposit outflows of over 2% of total banking system deposits so far and expects further withdrawals, particularly in the weeks around the election date. However, the rating agency believes the outflows will not be as large as those in May and June 2012 (9.3% of total private sector deposits as of end-April 2012). The system΄s liquidity is also under pressure from margin calls following the rise of the Swiss franc after the Swiss central bank removed a cap against the Euro on 15 January. Greek banks had currency swaps on their Swiss franc-denominated assets (largely mortgages) of €12.5bn at YE’13 (or 3.5% of total assets of the four core banks). These assets are largely hedged, limiting any profit and loss impact.

Nevertheless, Fitch notes that banks’ access to ECB liquidity facilities is dependent on Greece being under the international bailout programme. A prolonged election process and deadlock between the new Greek government and the Troika could increase structural funding imbalances, if deposits take a long time to return to the system (post the 2012 elections, the sector recovered c70% of May-June 2012 deposit outflows in H2’12). Moreover, as per the rating agency, an extended period of political uncertainty would also be negative for banks’ already weak asset quality. Strategic defaulters could take advantage of the situation, although this would likely be temporary, while depending on the election outcome, there is a risk that reforms to insolvency laws could be postponed or terminated.