Banks bled 41 billion euros (31.63 billion pounds) of deposits since November 2014, an outflow that deprived them of liquidity and turned them to central bank borrowing to plug their yawning funding gap. Capital controls imposed in June 2015 helped contain the flight.

The outflows shrunk the stock of business and household deposits to 123.4 billion euros ($137.8 billion) in December, the lowest end-year level since 2003.

Although banks were recapitalised in November deposits have inched up by only 2.5 billion euros in the last six months, far slower than the growth of money in circulation - suggesting savers do have cash but are choosing to keep it at home.

"The return of lost deposits may prove challenging in the short term, forcing banks to continue to rely on ELA (emergency liquidity assistance)," said analyst Yannis Sinapis at Athens-based Euroxx Securities.

After a similar wave of outflows from May to June in 2012, before an election that saw the leftist Syriza party become the main opposition party, banks managed to recover about 70 percent of their deposit outflow in the second half of that year.

But this time around savers appear reluctant after the trauma of capital controls, a three-week bank shutdown last year and prevailing uncertainty over the first bailout review which seems to have hit a snag with the country's lenders.

"The longer it takes to recover deposits, the higher the structural funding imbalance for the banks and the higher the negative impact on their funding costs and profitability," Sinapis said.

Borrowing from the European Central Bank and the Bank of Greece funded more than a third of Greek banks' balance sheets at the end of September compared to an average of 3 to 4 percent for euro zone banks, showing the path to normality will be long.

"Thus far deposits have not shown a significant sustainable return to the banking system," Credit Suisse analyst Victoria Cherevach said in a report, expecting more inflows after capital controls are lifted and key reform milestones are met.

"We expect much of the deposit stock lost over the last several quarters of political uncertainty should largely recover by 2017."

ECB WAIVER

If all ends well with the review official lenders are conducting on compliance with pledged reforms, the European Central Bank will reinstate the waiver of minimum credit rating requirements making Greek government securities eligible collateral for ECB refinancing.

This will help Greek banks to reduce their reliance on emergency funding (ELA) from the domestic central bank which is 150 basis points more expensive.

According to Credit Suisse, for every one billion euros reduction of ELA in favour of ECB repo funding, banks will see a 15 million euros annualised benefit to net interest income.

"The risk to this is slower-than-expected progress on reform. Key milestones need to be met before the waiver can be reinstated. We assume it will be reinstated at the start of the second half this year," Cherevach said.

CASH UNDER THE MATTRESS

Greek bankers say that unlike 2012, a big chunk of last year's outflows stayed in the country in physical currency, making their return easier. Bank of Greece data show banknotes in circulation stood at 49 billion euros, up by 19 billion from late 2014.

While the liquidity position of banks remains stretched, analysts see only gradual improvement later this year and in 2017, with credit continuing to contract during 2016.

"The deposit decline was substantially steeper and recovery much more muted in 2015 than in 2012," said Piraeus Bank economist Ilias Lekkos, expecting deposits to grow 4.5 percent this year if capital controls are further relaxed.

Eurobank analyst Panagiotis Kladis sees a mere 5.0 percent increase in banks' deposit base this year.

"It may take time for the average depositor to feel comfortable to deposit money back into Greek banks as this is also subject to political stability," he said.

(Reporting by George Georgiopoulos; editing by Dominic Evans)

By George Georgiopoulos