Bad loan creation rate continues to slow down, bank officials say

It appears that the growth rate of new nonperforming loans (NPLs) is easing as bank officials say that third-quarter results to be published next week will reflect that the slowdown in the creation of bad loans continued for a second quarter in a row.

While this is good news for local lenders, there is still a long way to go before NPLs start to shrink. Bank officials estimate that bad loans came to 32 percent of all loans at the end of September, from 30 percent at end-June. This means loans that have not been repaid for at least 91 days add up to over 70 billion euros – more than twice the sum of the Greek lenders’ capital.

The latest data from the Bank of Greece showed that the index of nonperforming loans reached 27.8 percent at the end of March. Mortgage credit had delayed loans at 22.9 percent, consumer credit at 42.4 percent and corporate loans at 27.5 percent.

Containment of bad loans is a key issue for the future of the country’s credit sector. Bank officials explained to Kathimerini that unless the economy reverts to growth, which would aid in the battle against bad loans while strengthening the pace of credit expansion, the banking sector will be forced to face the risk of finding itself in a difficult position again.

“Even if the fiscal conditions stabilize, without a revival of economic activity the risk of banks needing a fresh injection to their capital base in 2014 will be clear, otherwise they will not be able to handle their NPLs,” warned a banking source. The management of bad loans is also crucial, not to mention the recovery of loans that provisions have considered as lost.

Banks estimate that a significant share of people who do not service their debts to banks do so not because they are unable to pay but because they are trying to take advantage of the situation in the hope that they will use a loophole to definitively avoid having to pay their debts without consequences. Lenders believe that a stricter system for home repossessions, under which only those who are in a difficult position will be protected, will assist toward restoring proper transaction behavior.

Officials warn that while it is normal for an economy in deep recession to show a major rise in NPLs, the sector has reached a point where it would not be able to withstand another rise in bad loans.

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