Rising geopolitical risks are affecting financial stability. The escalation of tensions in the Middle East and disruption to international energy flows have triggered a sharp rise in global energy prices, weighing on the economic growth outlook and reigniting inflationary pressures worldwide, the Bank of Greece says in its Financial Stability Report.
In this environment, it notes, high valuations and concentration in individual equities in the high-tech and artificial intelligence sectors are increasing the risk of a sharp repricing of assets in international markets.
Meanwhile, the rapid development of frontier AI models is emerging as a potential source of systemic risk, particularly because they can amplify cyber threats and create dependence on a limited number of providers and technology infrastructures.
In addition, rising government bond yields worldwide are increasing the cost of refinancing public debt, heightening concerns about economies with limited fiscal headroom. At the same time, higher yields are adversely affecting companies’ financial position by increasing their funding costs.
The economy
The Greek economy maintained its positive momentum in the first half of 2026. Annual gross domestic product growth stood at 1.9%, slightly below the 2.1% recorded in the same period of 2025 and significantly above the euro area average of 0.9%, despite instability in the international environment, mainly related to rising energy prices.
Economic growth was driven primarily by higher investment, which grew at more than twice the rate recorded in the first half of 2025, as well as by private and public consumption. The external sector made a negative contribution.
In addition, the labour market continued to expand in the first half of 2026, although employment grew more slowly than in the same period of 2025. Inflation, as measured by the Harmonised Index of Consumer Prices (HICP), rose to 3.8% in January-September 2026, from 3.0% in the same period of 2025, remaining significantly above the euro area average of 2.8%.
The banks
The banking sector’s fundamentals continued to improve in the first half of 2026. Profitability rose further, while the capital adequacy and loan portfolio quality of Greek banks remained at satisfactory levels, and liquidity stayed above the average for Banking Union countries. Recent upgrades to the credit ratings and outlooks of Greek banks point to their increased resilience to potential shocks.
Liquidity conditions for Greek banking groups remained favourable, with alternative sources of funding strengthening further. In the first half of 2026, Greek banking groups’ liquidity ratios remained significantly above regulatory requirements. In particular, the Liquidity Coverage Ratio (LCR) stood at 197.8% and the Net Stable Funding Ratio (NSFR) at 134.7% in June 2026.
The liquidity available to Greek banks, combined with their uninterrupted access to the interbank market and capital markets, has significantly strengthened their resilience. The loan portfolio quality of credit institutions showed a slight deterioration.
In June 2026, the stock of non-performing loans (NPLs) on a standalone basis stood at €6.2bn, up 9.3% from December 2025, mainly owing to a net inflow of new NPLs. The ratio of NPLs to total loans on a standalone basis was 3.4% in June 2026, compared with 3.3% in December 2025.
In 2026, Greek banks made progress in strengthening their operational risk management frameworks. Digital transformation, increased and more sophisticated cyber threats associated with the development of frontier AI models, and significant reliance on third-party information and communications technology providers make the transition to a modern model of digital operational resilience necessary.
The profitability of Greek banking groups improved further. In the first half of 2026, Greek banking groups recorded profits after tax and discontinued operations of €2.6bn, up 3.8% from the same period of 2025.
More specifically, Greek banking groups’ operating income increased by 6.8% in the first half of 2026 compared with the first half of 2025. Net interest income rose by 5.6%, driven by credit expansion and a significant increase in holdings of foreign government securities.
At the same time, net fee and commission income rose by 18.5%. As a result, income from core banking operations — net interest income and fee and commission income — increased by 8.3% year on year.
Meanwhile, income from financial transactions fell in the first half of 2026, while other operating results improved. In addition, operating expenses rose by 9.3%, while provisions for credit risk fell by 27.8% in the first half of 2026 compared with the same period of 2025. As a result, the banking groups’ return on assets (RoA) and return on equity (RoE) ratios stood at 1.3% and 12.1%, respectively.
The capital adequacy of Greek banking groups remained at a satisfactory level in the first half of 2026. The Common Equity Tier 1 ratio (CET1 ratio) on a consolidated basis fell to 14.8% in June 2026, from 15.4% in December 2025, while the Total Capital Ratio (TCR) edged down to 19.6%, from 19.8% in December 2025.
The two ratios fell by different amounts because capital instruments were issued that count towards regulatory own funds but do not form part of Common Equity Tier 1 capital (CET1). In addition, although finalised and settled deferred tax credits (DTCs) continue to account for a significant share of Common Equity Tier 1 capital (June 2026: 36.0%; December 2025: 39.7%), their gradual amortisation has accelerated following the implementation of a voluntary programme to reduce them more quickly.
* See the report in the Related Material column.