European banks are better positioned to weather a Greek euro exit because their financial strength has improved in the past three years, while funding markets are less likely to freeze, Moody’s Investors Service said.
The risk of restricted market liquidity has diminished because gradual economic growth in the region has bolstered investor confidence, according to a report on Monday from the credit-rating company. Banks in periphery European countries such as Cyprus, Ireland, Italy, Portugal and Spain remain the most vulnerable to a funding shock due to weaker balance sheets.
“Broad improvement in euro area banks’ financial conditions and an associated stabilization in the region’s economic environment has made banks more resilient to external shocks,” said Sean Marion, a London-based analyst at Moody’s. For periphery banks, legacy issues “weigh on their ability to return to full financial health, while they are also more susceptible to restricted market access and higher cost of wholesale funding.”
Anti-austerity Greek Prime Minister Alexis Tsipras is meeting other euro region leaders and international creditors in Brussels on Monday, seeking to work out a new aid deal before a June 30 deadline for debt repayments and secure new rescue loans. Regulators have ordered banks to shed risky assets and build buffers of high-quality capital since taxpayer money was used to bail out failing institutions during the crisis.