• Deposit withdrawals continue as talks with creditors loom
  • Distrust in banking system hinders capital controls removal

As Greek Prime Minister Alexis Tsipras braces for another round of tough negotiations with creditors, savers are still reluctant to bet their money that this year’s talks will be less perilous for their country’s place in the euro area than 2015.

Data released from Greece’s central bank this week showed that deposit outflows continued in November for a second consecutive month, even as the nation’s lenders plugged their capital shortfalls, and strict capital controls put in place last summer capped withdrawals and money transfers abroad. Deposits held by households and businesses in Greek banks fell close to a 12-year-low of 120.9 billion euros ($131.3 billion) in November, bringing total losses to a record of more than 43 billion euros, or 26.4 percent of total savings, in the last 12 months.

Savers’ distrust may derail the government’s goal of lifting capital controls by the end of June. Reluctance to return deposits held abroad or under mattresses back to banks hinders the ability of lenders to provide credit to the economy, as the government struggles to lead Greece out of recession in 2016 after a turbulent year which pushed the country to the verge of leaving the euro area.

Separate data also released by the Bank of Greece this week showed that private sector deleveraging picked up pace in November, with outstanding loan balances dropping 2.2 percent from the previous year. Credit contraction “returned with a vengeance in July, continued unabated in August, slowed in September, yet picked-up speed again in October and November,” Athens-based Pantelakis Securities’ analysts Paris Mantzavras and George Grigoriou wrote in a note to clients on Thursday.

Greek lenders cleared the hurdle of a pan-European review in 2014 thanks to capital increases of more than 8 billion euros and restructuring plans approved by the European Commission, only to see their solvency put to the test in 2015 when Tsipras’s government revolted against the terms attached to the country’s bailout lifeline. A stress test by the European Central Bank uncovered a 14.4 billion euro-hole in their books, amid increases in bad loans, subdued economic activity, expensive emergency funding requirements and strict limits on capital transfers.

Private investors plugged most of the shortfall, as bank stocks lost more than 93 percent of their value in 2015. The government covered the rest with more than 5 billion euros of emergency loans from the euro area’s crisis fund, while the valuation of the state’s equity portfolio in Greek lenders was practically wiped out in November.

Even as Tsipras assures savers that the country’s banks are now among the most adequately capitalized in Europe and there’s no risk of haircut or re-denomination for deposits, Greeks are still unwilling to bring their savings back, as the government remains at loggerheads with creditors over demands for additional pension cuts. Pension savings is among the main conditions for unlocking Greece’s next aid tranche and for debt-relief talks between the country and its euro-area creditors to begin.

“We consider the recent successful completion of the recapitalization of the Greek core banks as an important step towards the restoration of the impaired depositor confidence,” Athens-based Euroxx Securities’ analysts Yiannis Sinapis and Vangelis Karanikas wrote in a note to clients on Thursday, adding that the process will be slow, subject to political stability and the smooth implementation of the bailout agreement by the government.