The Bank of Greece's latest code of ethics, aimed at offering solutions to both banks and debtors to deal with nonperforming loans, was approved on Monday by the Credit and Insurance Matters Committee.
The list of measures in the code of ethics, which arrives as Greece’s commercial banks scramble to deal with a mass of NPLs, includes traditional approaches such as loan revisions leading to smaller monthly installments, a focus on interest repayments, loan amount reductions, voluntary return of property to creditor banks, as well as converting mortgages into rental contracts, through which former owners become tenants in exchange for rental fees.
In the business loans category – a major source of concern for banks as countless enterprises struggle to stay afloat – the revised code of ethics proposes transferring company shares to creditor banks, or even demanding administration changes should enterprises be seen as failing to cooperate with banks regarding NPLs.
Similar strategies have been implemented in other countries. The Bank of Greece recommends that they be put into effect in the Greek banking system as a means of handling the mountain of NPLs currently burdening the country’s banking sector, while also offering some relief to debtors.
At present, some 35 percent of loans, valued at 75 billion euros in total, are not being serviced. Besides causing serious cash flow problems at banks, the increased number of NPLs is also preventing the provision of more robust forms of credit.
Although the finalized code of ethics was not disclosed on Monday, the country’s central bank did note that it would function as a tool that would utilize “cooperative debtors” while also allowing for “adequate living means.”
The code will allow banks to initiate foreclosure procedures over home loans if debtors are seen as being uncooperative, according to the Bank of Greece.
All EU banks will undergo stress tests in October. Last week, Greek banking officials, supported by market analysts, defended the positions of local banks following a series of reports claiming capital injections could be needed.