Latest BoG data show that Greek banks’ Eurosystem funding rose by €2.4bn m-o-m in April, most likely reflecting deposit outflows in the aftermath of recent developments in Cyprus. It is noteworthy that Central Bank funding had dropped by c€37bn in Dec ’12 – Mar ’13 with cheaper ECB funding accounting for more than ¾ of total Central Bank funding.

In particular, ECB funding eased by €9.8bn or 13.9% m-o-m to €60.91bn at the end of April from €70.73bn at the end of March and €75.23bn at the end of February. At the same time, BoG liquidity provided to Greek banks through the ELA mechanism rose by €12.2bn m-o-m to €33.43bn in April after falling by >€100bn in Dec ’12 – Feb ’13. The temporary increase in ELA funding is attributed to the expiration of Greek government guarantees (used as collateral with ECB) at the end of April, which were renewed within May, thus ELA funding is expected to return at March levels (i.e. ~€20bn) at the end of May.

Overall, Greek banks’ Eurosystem (ECB plus ELA) funding rose for the first time since August ’12 by €2.4bn or 2.6% m-o-m to €94.34bn in April, from €91.96bn in March and €96.39bn in February, most likely due to deposit outflows in the aftermath of recent developments in Cyprus. It is pointed out that March Eurosystem funding had reached its lowest level since April ‘11.

Going back to previous months’ evolution, it is noteworthy that Eurosystem funding had peaked to €157.09bn in February ’12, while follows a declining trend over the past eight months, with a material acceleration particularly in January and February. The recorded cumulative decrease of €39.7bn in Aug ’12 – Mar ’13 (of which €36.9bn in the last four months of this period), 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 €10.7bn in Aug ’12- Mar ’13 partly justifying that reduction.

What is also important is that ECB funding contribution to total Eurosystem funding had climbed above ¾ in February and March, 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 aforementioned trend was temporarily stalled in April for technical reasons and is expected to resume at March levels in May.

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.