Reducing bad debt in recession-plagued Greece is apparently considered an unattainable goal without a genuine economic recovery and a return of confidence in the local economy, as figures dating from 2008 show a dramatic increase in non-performing loans (NPLs) since the crisis erupted.
By A. Doga
Reducing bad debt in recession-plagued Greece is apparently considered an unattainable goal without a genuine economic recovery and a return of confidence in the local economy, as figures dating from 2008 show a dramatic increase in non-performing loans (NPLs) since the crisis erupted.
Despite whatever contingencies now in place by bank managements and momentum to improve and liberalize the framework in Greece for managing NPLs, after years of delay, the most crucial factor in beginning to reduce the “Olympus sized mountain” of doubtful debt in the country remains a distinct improvement in the macro-economic outlook, in tandem with a boost in markets’ and consumers’ confidence.
NPLs are now estimated to exceed 110 billion euros in the country.
According to the relevant figures, through 30 consecutive quarters only one posted a reduction in NPLs, namely, Q4 2014, the last quarter before snap elections in 2015 and the rise of leftist SYRIZA to power.
At the time, markets judged that an improvement over the previous three-year results was evident, while discerning indications of recovery.
Bank of Greece (BoG) Gov. Yannis Stournaras provided the figures in testimony before a relevant Parliament committee last week. However, those figures failed to “make headlines” at the time because of Stournaras’ eyebrow-raising statements on the unproductive negotiations by the first Tsipras government with institutional creditors in the first half of 2015.
According to figures he cited, the “explosion” in the value of NPLs occurred between 2011 and 2013, with a slight de-escalation beginning in the last month of 2013 and continuing throughout 2014.
The last quarter of 2014, in fact, witnessed an actual reduction in the value of NPLs by 1.2 percentage points, to 40.8 percent from 42 percent, qoq.
The positive sign was overturned in the subsequent 18 months until June 2016, when the value of NPLs again increased, reaching 45 percent by the end of September.
The target now for Greek systemic banks and the SSM is a reduction of 41 billion euros of NPLs’ value by the end of 2019, with the emphasis on loan restructuring – a prospect that obviously necessitates a stable macro-economic environment.
In terms of Greek banks’ preparation, internal restructuring is swiftly taking place by transferring personnel and better training, as well as inaugurating new NPL management platforms – a first, by Greek banking standards – jointly with specialized foreign banking consultants and companies.
As far as timetables are concerned, 2018 will be the crucial year in gauging how successful efforts to reduce NPLs will be, whereas 2017 is judged as a “transitional year”, with goal being a modest seven billion euros in reduced NPL value; increased to 16 billion euros for 2018 and 19 billion euros in slashed NPL value for 2019.
According to Greek bank analysts, the total 41-billion-euro target is broken down as such: 16 billion euros from write-offs; five billion euros from sales of assets; seven billion euros from the proceeds of foreclosed and auctioned off property; and 10 to 15 billion euros from repaid obligations.