Three of Greece’s largest lenders plan to sell up to 5.5 billion euros in bad loans by early next year, sources said, as the country’s central bank chief called on the creaking banking sector to act faster to tackle its bad-debt problem.
Greek banks are saddled with 103 billion euros in bad loans, equal to almost 60 percent of the economy, after years of financial crisis and crippling recession. The European Central Bank wants that reduced by 38 billion euros by the end of 2019.
Greece’s largest lender, Piraeus Bank, as well as peers National Bank (NBG) and Alpha Bank plan to take a major step toward that goal with a record series of sales to be completed by the end of March, the banking sources said.
They are responding to growing regulatory pressure to tackle the bad-debt problem, which restricts banks’ ability to expand credit and undermines Greece’s tentative economic recovery and efforts to end its reliance on European Union bailout funds.
Greece’s central bank chief told Reuters on Wednesday that he wanted to see faster progress.
“Banks need to be more ambitious on their bad-loan reduction targets and speed up the sales of NPLs,” Bank of Greece Governor Yannis Stournaras said by telephone.
Bankers describe bad debts as “the elephant in the room”, a huge problem often overshadowed by years of tense bailout negotiations between Athens and its EU lenders.
If Piraeus, National Bank and Alpha sell up to 5.5 billion euros combined as planned, overall NPL sales would reach 7 billion euros, or around 18 percent of the task set by the ECB.
However, the sales are mostly of loans already written down heavily on bank balance sheets and unlikely to result in any substantial further losses. The bigger challenge comes when they must deal with the bulk of their secured bad loans.
“Outright sales of unsecured NPLs will be the ones to start the dance,” a senior Alpha banker said.
There have been concerns, particularly at the International Monetary Fund, that collateral underpinning many secured bad loans, such as property, may be worth less than implied in banks’ books. If so, lenders could face more writedowns and may need to raise more capital.
The ECB has rejected the IMF’s push for a fresh quality check of Greek banking assets but is bringing forward plans for its own stress test of Greek lenders scheduled for next year.
That test is likely to be finalized as early as May, a source told Reuters last month, so Greece would still have time to address any capital shortfalls before the country is due to emerge from its third EU bailout.
Eurobank launched Greece’s first major sale of bad debts this month, shifting loans with a face value of 1.5 billion euros to Sweden’s Intrum, which paid 45 million euros or just 3 percent of the nominal value.
The banking sources did not name likely buyers for the upcoming sales. Acquirers in similar auctions in Italy and Spain have included Pimco, Fortress, Cerberus, Apollo Global Management, Anacap Financial Partners and Bain Capital Credit.
Piraeus Bank plans to sell 3 billion euros in bad debt, half in the form of unsecured consumer loans, a senior banker involved in the process said. The rest would include 1.5 billion euros of business loans with collateral.
“We are looking at our options and have engaged resources to evaluate NPL sales. UBS is advising us on the secured part of the pool of NPLs we plan to sell,” the banker said.
Piraeus Bank’s NPLs, defined as loans overdue by more than 90 days, represented 37.1 percent of its total loan book in June. On a broader measure, including restructured loans deemed likely to go bad, that ratio rises to 52 percent.
National Bank (NBG), Greece’s second-largest lender, plans to sell up to 1.5 billion euros in unsecured consumer loans and has hired PriceWaterhouseCoopers as sale adviser.
“The transaction will be concluded by the first quarter of 2018,” a senior NBG executive told Reuters.
NBG’s non-performing exposure, a measure that includes NPLs and loans likely to sour, stood at 45 percent of total loans at end-June, the executive said, adding that the bank has written down 55.7 percent of these loans.
Alpha Bank is also preparing to sell up to 1 billion euros in bad retail loans by the end of the first quarter of 2018, a senior Alpha banker said. The bank’s non-performing exposure ratio stood at 53.7 percent at end-June, with coverage by provisions at 48 percent.
Alpha also has a joint venture with Cepal, a specialist in loan recovery, to manage 1.5 billion euros of bad loans. Cepal, which earns a fee on recoveries, may manage more of Alpha’s soured loans, including mortgages and small business loans, the banker said.
Bad loans managed by Cepal remain on Alpha’s balance sheet.