Greek banks passed the International Monetary Fund’s very rigorous stress tests with minimal losses. However, the IMF highlights the serious risks posed by the large share of deferred taxes in capital, the excessive concentration of loans in a few large companies, and the inefficiency of servicers.
According to the IMF’s Financial Sector Assessment Program (FSAP) report—the first conducted on Greek banks in 20 years (since 2006)— Greek systemic banks have passed the Fund’s rigorous stress tests with flying colors.
The IMF certifies that the banks now have strong balance sheets, high profitability, and ample liquidity, having cleaned up their assets by eliminating the overwhelming majority of non-performing loans (NPLs).
The tough stress test: How banks withstood extreme scenarios
The IMF subjected the four systemic banks, which dominate the market by holding 92.7% of total banking assets (approximately €293 billion), to extremely rigorous stress tests covering the three-year period 2026–2028.
To assess their resilience and solvency, two extreme but plausible macroeconomic scenarios were used: a deep recession scenario (Recessionary) and a geopolitical scenario (Geopolitical).
In the recessionary scenario, a synchronized global slowdown is assumed, combined with a public debt crisis in the Eurozone. In this case, the Greek economy suffers a severe shock, with a cumulative decline in real GDP of 8.4% over the first two years and unemployment surging to 15.5% at the height of the crisis.
In the geopolitical scenario, we examine the further escalation of military conflicts in the Middle East and extreme disruptions in global production supply chains. Here, the country’s real GDP shrinks by 6.8% cumulatively, unemployment rises to 13%, and inflation accelerates to 4.9% due to soaring oil and commodity prices.
Slight decline in capital adequacy
The results of these exercises attest to the impressive resilience of the domestic sector. The IMF notes that in the extreme recession scenario, banks’ core CET1 capital adequacy ratio would decline by just 1.4% at its lowest point. This decline stems from increased provisions for credit losses and weaker fee income.
In the geopolitical scenario, performance is better, with the decline in the CET1 ratio limited to just 0.7%. The reason is that higher interest rates support the banks’ net interest income, which acts as a safety net, offsetting the impact of higher credit risk losses.
In any case, the Fund emphasizes that all four systemic banks remain well above supervisory and regulatory capital requirements.
At the same time, exceptional performance was recorded in the liquidity stress tests. With the Liquidity Coverage Ratio (LCR) standing at an impressive 198.8% and the Net Stable Funding Ratio (NSFR) at 136.4% (December 2025 data), Greek banks far exceed the European average and have a sufficient “cushion” even under very adverse scenarios of outflows and market turbulence.
The Three Threats
Despite these glowing figures, the FSAP report devotes extensive and rigorous sections to analyzing three significant vulnerabilities in the system, which constitute a constant source of risk:
1. The first major “thorn” concerns the quality of Greek banks’ capital, which remains significantly weaker than that of their European competitors. The reason is their well-known reliance on Deferred Tax Credits (DTCs), a legacy of the Greek debt crisis, the PSI program (bond haircut), and the massive write-off of NPLs. DTCs on banks’ balance sheets amounted to a staggering €11.5 billion in December 2025.
This amount represents 43.4% of total CET1 regulatory capital (core equity). Although European regulations currently allow these amounts to be included in capital, the IMF points out that their enormous relative size overstates the actual, underlying solvency of the Greek banking system. In fact, it recommends that the government not merely rely on the banks’ agreement with the Supervisory Mechanism for faster amortization of DTCs, but also enforce it through relevant legislation.
2. The second major structural issue highlighted by the Fund concerns the very operating model of Greek banks and their one-sided, conservative credit expansion. Despite the recovery in overall credit demand, loans are directed almost exclusively to large non-financial corporations (NFCs), leaving households and small and medium-sized enterprises (SMEs) on the sidelines.
This practice has created a serious concentration risk. The IMF notes that systemic banks largely follow identical lending strategies. The four banks’ 10 largest joint corporate exposures (i.e., lending to 10 specific large corporate groups) collectively account for 121.6% of the banking system’s total Tier 1 capital and 81% of Tier 1 capital.
These giants are primarily in the utilities and manufacturing sectors. The Fund warns that, although these large companies currently have healthy and strong balance sheets, this interdependence creates a highly correlated risk.
If a geopolitical crisis, an energy shock, or a sudden economic upheaval were to cause simultaneous financial distress in more than one of these few companies, then the country’s entire banking system will face extremely serious consequences due to the lack of diversification in its client base. The Fund calls on the Bank of Greece to monitor these large common debtors very closely and to be prepared to impose macroprudential measures to increase capital buffers.
3. The third “caveat” concerns the management of private debt and the controversial role of credit servicers. The fact that banks have cleaned up their balance sheets does not mean that the problem of NPLs has disappeared from the real economy; it simply means that the debt has been removed from the banks’ balance sheets.
Servicers are tasked with managing a massive mountain of “non-performing” loans totaling €72.6 billion (original face value). This amount corresponds to approximately 31% of Greece’s GDP in 2024. This involves 2.9 million loans that directly affect 2.4 million borrowers, in a country with a population of just 10.4 million.
Of these NPLs, approximately half (€37.6 billion) were included in the “Hercules” (HAPS) state guarantee program, while the remaining €35 billion came from direct sales. The IMF takes a particularly critical view of the servicers’ performance, emphasizing that they are seriously lagging behind in both the restructuring and the liquidation of NPLs, consistently and unjustifiably falling short of the targets set in their own business plans.
This underperformance is not attributed solely to the chronic pathologies of the judicial system and delays in auctions. The Fund “points the finger” at the companies themselves, noting that the foreign investors controlling them are underinvesting in critical areas (e.g., specialized personnel and advanced IT systems), mainly due to low financial incentives and large bond maturities.
The consequences of this inefficiency are systemic. First, it holds millions of citizens and small and medium-sized enterprises hostage, who remain “unbankable,” (unbankable), depriving the banks themselves of the opportunity to expand their customer base and stifling healthy credit expansion.
Second, it creates enormous potential fiscal risks: If debt recoveries by servicers continue at a slow pace, the senior bonds of the “Hercules” program held by banks are at risk of significant shortfalls.
This would trigger government guarantees, which amounted to €16.8 billion (or 6.8% of GDP) in September 2025, ultimately passing the bill on to Greek taxpayers and inflating public debt. The IMF is urging the Bank of Greece to abandon its role as a mere observer and immediately impose strict supervision on servicers.