Cure rate for Greece's NPLs in single digits; problem mushrooms

By A. Doga

A mere 3 percent of restructured non-performing loans (NPLs) remain up-to-date following a refinancing scheme between the credit institution and the loan holders, a worrying figure that reportedly shows the depth of the problem faced by Greek banks holding more than 110 billion euros worth of NPLs.

Greece’s crisis-battered banking sector, in fact, will face strict monitoring, come September, by the Eurozone’s Single Supervisory Mechanism (SSM) and its institutional creditors over its efforts to ameliorate the “Olympus-sized” mountain of NPLs in the country.

The entire NPLs quandary still lacks a liberalized legal framework in the country, as Greece remains in a recession and with the government apparently lukewarm to the radical reforms demanded by creditors.

A past proposal to establish “bad banks” in order to collect NPLs, which surfaced during the first bailout, is now considered a missed opportunity by bank managements.

Dealing with the mounting and asphyxiating problem of NPLs is expected to dominate upcoming negotiations between Athens and institutional creditors towards concluding a second review of the Greek program (third bailout) in September. Creditors have pointed to glacial progress by Greece’s four systemic banks in dealing with NPLs, with the reasons mostly due to delays in acquiring internal structures and know-how, as well as state interventions, such as a freeze to practically all foreclosures and legal protection for low-income debtors.

A cure rate index of 2.8 percent, in fact, is lower than the default rate, which stands at 3.5 percent.

Another “dark spot”, one repeatedly cited by the Bank of Greece, is the fact that Greek banks have only used the option of short-term solutions in dealing with NPLs, up to two years at most.