The second-quarter financial results of Greece’s four systemic banks indicate that Eurobank, National, Piraeus and Alpha will need to increase the pace of bringing down their bad loans in the coming years to sustain profits and avoid a drop in capital. To that end they are diversifying their strategy and putting provisions on the back burner.
Most of the main banks ended both the second quarter and the first half of the year in the black, as they opted to record profits at the expense of the high-provision policy that they had followed until recently. After all, the sizable provisions of previous years can now be used as a safety cushion, combined with the existing collateral that serves to cover the nonperforming exposures (NPEs). This has led to a shift in priority this year toward tackling bad loans efficiently through settlements, auctions and portfolio sales, as well as securitizations, which are staging a dynamic comeback.
Eurobank is the first bank to proceed with the securitization of mortgage loans, totaling 2 billion euros; if this move is endorsed by the market it is expected to pave the way for other banks to follow, given that they have abstained from this niche for more than a decade.
Sales of bad loans, which are perceived as a necessary evil for a substantial reduction in NPEs, will be at the focus of the effort to reduce bad-loan stocks. However, bank officials explain that this process will have to be conducted with great caution because if the bad loans are transferred at a loss, they may have a serious impact on banks’ final results and consequently their capital, which after the successful stress tests is at a high level for Greece’s credit system as a whole.