Banks awaiting new legal framework to begin clearance of corporate, business NPLs

By A. Doga

A looming reform of Greece’s legal framework to allow for the effective management of non-performing loans (NPLs) is apparently closer to implementation, an imperative development to begin reducing an “Olympus sized” mountain of “bad debt” hovering at 110 billion euros.

Changes in Greece’s antiquated bankruptcy code are in the deliberation stage, while the prospect of an out-of-court arbitration process is on the agenda of negotiations with institutional creditors.

The only remaining issue needing resolution is legal immunity for bank executives approving corporate and business restructuring.

Greece’s four systemic banks are reportedly waiting for a finalization of the new legal framework in order to present their terms to businesses burdened with NPLs but considered as financially viable.

Greek bankers have long lobbied for changes in the country’s bankruptcy code, in line with international best practices, such as removal of corporate managements deemed as incompetent or shareholders of loss-making and debt-burdened companies unwilling to participate in restructuring and share capital increases. Another standing demand is for a quicker liquidation process for companies considered as financially unsustainable or insolvent.

Bank managements have pointed to numerous instances, including very recent examples, where business owners and managers have balked at injecting “new money” into troubled companies or relinquishing control – a phenomenon that is particularly noticeable in family-run businesses and companies still led by their founders.

The prospect of fast-track management changes in tandem with restructuring is judged, by banks at least, as allowing for application of necessary pressure on primary shareholders to “either participate in a solution, or finally cease being part of the problem.”