Greek banks are aiming to reduce nonperforming exposures (NPEs) from about 110 billion euros today to 65-70 billion in 2018.
That is a very ambitious target which would require a stable economic environment, strong growth rates and a number of reforms in the country’s legal and tax framework for the banks to be able to proceed rapidly and decisively toward debt restructuring, loan sales and bad loan write-offs.
According to bank officials, the reduction of NPEs by 40-45 billion euros in the period from 2016 to 2018 is mainly seen coming about in three ways: The first concerns the restructuring or resuscitation of nonperforming loans. Banks estimate that some 25 billion could revert to normal status via various adjustments, with the Alpha-Eurobank-KKR deal constituting an important step toward the active management of bad loans.
The second is loan write-offs: Having gathered a huge stock of provisions that exceed 50 billion euros, banks will act more dynamically toward writing off NPLs. Once a series of accounting and technical issues have been resolved, lenders could strike out loans adding up to 10 billion euros, most of them old corporate debt that has no hope of resuscitation.
The third method concerns the sale of bad loans. Banks estimate that in the next few months they will be able to transfer NPLs amounting to 5 billion euros to specialized companies. Although loan sales are not bank administrations’ top priority right now, as they believe they would have more to gain through active management, such transactions will take place gradually.