Latest BoG data show that Greek banks’ Eurosystem funding dropped by €4.4bn m-o-m in March, following a €11.3bn and €13.5bn decline in February and January respectively, with cheaper ECB funding accounting for more than ¾ of total Central Bank funding.

In particular, ECB funding eased by €4.5bn or 6.0% m-o-m to €70.73bn at the end of March from €75.23bn at the end of February and €76.22bn at the end of January. At the same time, BoG liquidity provided to Greek banks through the ELA mechanism remained almost flat m-o-m at €21.22bn in March from €21.16bn in February and €31.43bn in January.

Overall, Greek banks’ Eurosystem (ECB plus ELA) funding retreated for seventh consecutive month by €4.4bn or 4.6% m-o-m to €91.96bn in March from €96.39bn in February and €107.65bn in January, reaching its lowest level since April ‘11.

It is noteworthy that Eurosystem funding had peaked to €157.09bn in February ’12, while follows a declining trend over the past seven months, with a material acceleration particularly in January and February. The recorded cumulative decrease of €39.7bn since August ’12 (of which €36.9bn over the past four months), is most likely attributable to higher interbank lending and lower funding needs (potentially resulting from excess Eurosystem funding in the past), while deposit inflows stood at €10.9bn in the Aug ’12- Feb ’13 period partly justifying that reduction.

What is also important is that ECB funding contribution to total Eurosystem funding remained above ¾ for second consecutive month, with ECB accounting for 77% of Eurosystem funding in March from 78% in February and 71% in January compared to just 16% in December and 4-5% in October and November.

The continued change in the funding mix results from ECB statement (December 19, ’12), following Eurogroup’s formal decision on the disbursement of the next tranche to Greece, to suspend the previously imposed (July ‘12) non-eligibility of GGBs, a development expected to shift Greek banks’ Eurosystem funding towards the less expensive ECB funding with a consequent positive impact on their NII as of Q1’13.