By A. Doga
[email protected]
The primary indexes related to the management of non-performing loans (NPLs) and non-performing exposures (NPEs) in Greece remained unfavorable despite Greek lenders’ stepped up efforts to deal with the Olympus-sized “mountain” of bad debt in the country.
According to the latest figures, six out of 10 previously refinanced or renegotiated loans have again ventured into “bad debt” territory, whereas two out of 10 borrowers in Greece are considered “strategic defaulters”; three out of 10 borrowers with outstanding loan arrears are also considered as incommunicado.
The reasons given for the continuing poor state of bad debt management in the country is attributed to uncertainty, weak economic activity, a de facto freeze in court-sanctioned property auctions, delays in finalizing an out-of-court settlement framework, as well as a lack of legal immunity for bank executives involved in corporate restructuring schemes.
A “cushion” that was accumulated at the end of 2016, in terms of reducing NPEs, reportedly carried over into the first quarter 2017, although ongoing delays risk jeopardizing targets for the entire year in terms of slashing NPLs and NPEs.
By all accounts, Greece’s four systemic banks will attempt to cover lost ground in the second half of the year, following the now looming conclusion of the second review of the Greek program this month. A new out-of-court settlement framework is expected to be unveiled in three months, if the legislative timetable set by the government is strictly implemented. Moreover, the oft-cited commencement of electronic property auctions is expected in September, given that groups and associations representing notary publics in the country – mandatory legal representatives in the current regime – have boycotted auctions over the recent period.
Bank managements, nevertheless, consider both dates as overly optimistic.
One “Plan B” that has emerged to meet this year’s targets is to rely on more debt “haircuts” and possibly the sell-off of loan blocs to distress funds, assuming market demand arises for such Greece-based products. Moreover, the specter of poorer results in 2018 stress tests, emanating from this year’s failure to meet “bad debt” reduction targets, is much greater than a possible SSM reprimand, according to bank sources.
The target for 2017 is for reduction of NPEs by 7.6 billion euros, of which 2.5 billion euros is held by Piraeus Bank; two billion euros by Alpha Bank; 1.9 billion euros by Eurobank and 1.2 billion euros by National Bank.
The first quarter of 2017, which was punctuated by gasping negotiations between the Tsipras government and institutional creditors in tandem with lackluster economic activity, posted increased arrears totaling 1.5 to 2.0 billion euros for loans that were previously renegotiated (delays exceeding 90 days). Total NPLs in 2016 were reduced by four billion euros, while the level of NPEs remained unchanged.
