Greek banks are offering higher interest rates to attract back billions of euros that savers pulled out in cash last year, as lenders bid to ease their liquidity strains after a slight reduction of capital controls.
Greeks withdrew more than €40bn of deposits since November 2014 on fears the country would topple out of the euro before capital controls imposed in June last year contained the flight.
The outflow deprived banks of liquidity, forcing them to turn to central bank borrowing to plug their funding gap. Most of the money that fled the system was hoarded “under the mattress” at home – or in safety deposit boxes. A smaller proportion was sent abroad.
Last month the government scaled back some restrictions, lifting withdrawal limits on cash redeposited into the banking system. Savers can withdraw the entire amount of new cash deposits and up to 30 per cent of money transferred from abroad in cash.
To entice inflows of ‘mattress’ cash, banks are offering higher interest rates, paying up to half a percentage point above what existing time deposits earn.
“We offer 1.3 per cent on a six-month time deposit, the rate is higher than the 0.8 per cent rate that existing accounts earn for a similar period,” said Vasiliki Balaska, an account officer at Alpha Bank.
“The entire amount of fresh cash deposited can be withdrawn, it is not subject to capital controls,” she said.
Greek central bank data showed that banknotes in circulation stood at €47bn in June. While a portion sits at the Bank of Greece’s vaults, the figure is up by about €17bn from late 2014, meaning there is money to be lured back.
Rival Eurobank offers similar rates on three and six-month new time deposits.
Savers inclined to deposit large amounts of cash may face some hurdles. Capital control rules prohibit opening new accounts, meaning they will need to deposit the money into an existing account and do some explaining.
“One cannot walk into a bank with €50,000 in cash and expect us to accept it without questions. It helps if they can provide withdrawal slips, showing the money was pulled out during the crisis,” said another personal banker.
Banks have seen a trickle of deposit inflows in nearly a year after the country clinched a third international bailout to stay in the eurozone. The longer it takes to recover deposits, the higher the structural funding imbalance for the banks.
While corporate and household deposits rose in June for the second month in a row to €122.74bn, they remain at their lowest levels seen since November 2003 but authorities expect improvement.
Deputy Finance Minister George Chouliarakis told parliament last month that the government is projecting a three to four billion euro capital injection into banks as a result of hoarded cash being redeposited.