Lenders opt for internal ‘bad banks’

Next week should see the completion of consultations between the Bank of Greece and the country’s four systemic lenders concerning the banks’ management models for nonperforming loans. The solution that local lenders appear to have opted for is internal “bad banks.”

US firm BlackRock Solutions has already submitted its valuation of the troubled asset management models that Greek banks employ to the Bank of Greece, along with a list of best management practices used internationally.

Based on the above assessments, the Bank of Greece asked lenders to submit their own proposals on how to deal with bad loans, which are continuing to grow albeit at a much slower rate than a few months ago. A short consultation period will follow before the Bank of Greece reaches its final decisions.

According to reports, the systemic lenders have proposed the creation of subdivisions that will administer nonperforming loans. They are expected to be ready by the end of this year or early 2014 at the latest.

This is a solution on which the Bank of Greece and the country’s creditors agree, as they consider that the creation of bad loan management divisions would in theory attain the target of independent management. It is still believed certain that the Bank of Greece will ask the banks to provide additional plans to ensure the adoption of improved models for managing troubled assets.

Piraeus Bank officials told investors on Friday that the lender will shortly make an announcement regarding its internal bad bank, as part of the restructuring moves to be conducted based on the conclusions of the Troubled Asset Portfolio inspection by BlackRock.

Eurobank Chief Executive Christos Megalou informed analysts on Friday that the state-owned lender has already created a unit for customers with nonperforming loans, so that there is a holistic approach to risk management.

During the week National Bank officials said that the process for the creation of a division that will take over the nonperforming loans is at an advanced stage. Talks within the lender have now matured, officials said, and the procedure will be completed soon with the assistance of an external adviser.

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