Latest BoG data show that Greek banks’ Eurosystem funding dropped by €9.0bn m-o-m in May, most likely reflecting higher interbank funding and deposit inflows. What is also important is that, after a temporary hike in April, ELA funding contribution to total Central Bank funding returned to normal levels.

In particular, ECB funding rose by €4.5bn or 7.4% m-o-m to €65.40bn at the end of May from €60.91bn at the end of April and €70.73bn at the end of March. At the same time, BoG liquidity provided to Greek banks through the ELA mechanism dropped by €13.5bn or 40.4% m-o-m to €19.93bn in May from €33.43bn in April and €21.22bn in March. It is noteworthy that the temporary increase in ELA funding in April was due 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 resumed to normal levels at the end of May.

Overall, Greek banks’ Eurosystem (ECB plus ELA) funding slipped by €9.0bn or 9.6% m-o-m to €85.33bn from €94.34bn in April and €91.96bn in March, reaching its lowest level since April ’11 and most likely reflected higher interbank funding and – to a lesser extent – deposit inflows.

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 nine months, with a material acceleration particularly in January, February and May this year. The recorded cumulative decrease of €39.7bn in Aug ’12 – May ’13 (of which €35.9bn in the last five 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 (€10.7bn in Aug ’12- Mar ’13) partly justified that reduction.

What is also important is that ECB funding contribution to total Eurosystem funding resumed above 75% in May, after a temporary drop to 65% in April, with ECB accounting for 77-78% of Eurosystem funding in May, March and February and 71% in January compared to just 16% in December and 4-5% in October and November last year.

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 (-200bps) ECB funding with a consequent positive impact on their NII as of Q1’13.