Lower deposits, bad loans block liquidity

The wave of nonperforming loans (NPLs) has cost Greek lenders more than 30 billion euros over the last few years, hampering the normalization of conditions that would allow for the provision of desperately needed liquidity to the economy, bank officials claim.

The other major block has been the steep drop in deposits, which shrank from 237 billion euros at the end of 2009 to 162 billion last June. A large part was transferred to banks abroad by people fearing a Greek exit from the eurozone but the lion’s share was used by businesses and households in an effort to cope with the sharp drop in incomes and revenues as well as to meet the particularly high tax liabilities.

NPLs shot up from 5 percent in December 2008 to 27.8 percent in March 2013. They now total more than 63 billion euros and lenders have to devote the sum of their net income and part of the loans repaid to cover this hole. Of the 30 billion euros devoted to provisions for bad loans, 6.6 billion was in 2012 alone.

Finance Ministry sources say thwarting the rate at which new NPLs arise is crucial not only for restoring liquidity to the economy but also for securing banks’ capital bases. If provisions continue to be needed at the same pace, banks will need fresh recapitalization, which will have to be largely shouldered by the Greek taxpayer. The sources argue that a partial lifting of the ban on home foreclosures will help restore normal conditions and transaction ethics.