Greece’s central bank unveiled a proposal on Thursday it said could remove a mountain of bad loans from banks’ balance sheets to a single-digit ratio within two to three years, hoping to beat a deadline set by regulators.
Greek banks have the highest level of non-performing exposures (NPEs) in Europe, with more than 45 percent classed as bad loans, the equivalent of 88.9 billion euros.
Under the central bank’s proposal, banks would transfer a “significant part” of their NPEs and deferred tax claims to a special purpose vehicle. That SPV would then convert the deferred tax claims - tax breaks to companies when reporting losses - to a claim on the state. The transfer would be financed with a bond issue, the central bank said.
It did not mention the value of loans to be transferred, saying that would have to be carried out by independent third parties. Banks were expected to make a commitment of achieving a single-digit ratio of NPEs within a three-year period from engagement of the transaction.
Banks have agreed with European Central Bank regulators to take steps to shrink bad loans to 64.6 billion euros by the end of 2019, or by 37 percent.
“The plan has been sent to the SSM and will be presented next Monday,” a Greek central bank official told Reuters, referring to the ECB’s supervision mechanism.
“The Central Bank of Greece is attempting, in tandem with the efforts of banks, and bearing in mind any legal limitations, to drastically reduce NPLs so they fall to the European average by 2021,” the official added.
Greece’s central bank said its proposal would bring about a “direct and drastic” reduction in NPEs and would allow, under certain conditions, to target single-digit ratios within two to three years.
Non performing exposures are a particular legacy of crisis-hit countries, with Greece and Cyprus topping the list.
According to data from the European Banking Authority, all EU member states bar those two plus Portugal have ratios of non-performing loans - exposures which do not include those loans restructured - of less than 10 percent. [Reuters]