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THESSALONIKI, Greece, Nov 25 (Reuters) - Greek banks are solvent but face liquidity problems and need the government's support plan, Greek central bank governor George Provopoulos said on Tuesday.
"Greek banks are solvent, healthy and stable but there is a liquidity problem," he told a news conference. "If the Greek government had not stepped in, then we would face the risk of a severe credit squeeze."
Last week, Greece approved a 28 billion euro ($36.05 billion) bank bailout plan aimed mainly at pumping money into a slowing economy. Greek banks have had little exposure to toxic assets and have suffered no writedowns.
But they have ventured into faster-growing East European markets, where profits have been squeezed as the global crisis begins to hit emerging markets.
"We have recommended to banks to coordinate their credit expansion in the Balkans with local markets," Provopoulos said. "They cannot take money from Greek depositors to fund these markets."
He added he was sure the banking market would be consolidated in the next few years, with mergers affecting mainly small banks but also bigger lenders.
Commenting on Greece's 2009 budget, submitted to parliament last week, Provopoulos said it was a difficult task.
"It is not an easy budget. It is a difficult one in an especially difficult period," he said.
Economists have said the conservative government's budget, which foresees GDP growth of 2.7 percent and a budget deficit of 2 percent of GDP, is too optimistic.
Although its economy is growing faster than its euro zone peers, Greece has a debt almost equal to its GDP and a current account deficit at about 15 percent of its economic output.