Pressure on banks to write off corporate debt
The government is putting pressure on banks to increase funding to enterprises in an bid to see the improvement of financial conditions reflected in the real economy.
Following statements on Thursday by a top Development Ministry official suggesting that certain enterprises are in a position to grow “if banks acknowledge that a share of their loans cannot be repaid,” Alternate Finance Minister Christos Staikouras told a conference on Friday that following their recent recapitalization, “banks must stand up to their role as intermediary and supply the necessary liquidity to the real economy.”
The drive to increase the flow of resources to the benefit of the real economy from banks will be accompanied by initiatives designed by ministries aimed at changing the procedures pertaining to corporate bankruptcy and offering incentives for the restructuring of enterprises through measures favoring mergers and tax exemptions.
Banks, meanwhile, are starting to appear more willing to address the taboo issue of debt writeoffs. They say, however, that this option would be considered only on the condition that it is based on strategy and part of an overall plan for restructuring companies and bolstering of growth. They add that the cost of such a process could, initially, “be funded by the provisions that add up to 40 billion euros, part of which could be released and channelled to the economy,” as one top bank official explained.
However, according to the same sources, the discussion needs to take place without any grandstanding for the sake of public opinion.
The risk from such a tactic, which could lead to undue pressure being put on banks to write off debts without previously having done the necessary planning, could “generate phenomena of unfair competition by entrepreneurs who have declared their companies bankrupt and have parked their money abroad,” one credit sector official said.
“The issue of defending healthy entrepreneurship and the shareholders who at a time of crisis defended their own companies, is serious,” he said.
“The government should support the ethical values of the market and cannot operate in a way that creates unfair competition,” the same official added
Among the issues to come under discussion will be the standardization of the process for assessing companies’ sustainability so as to coordinate the efforts of the four systemic lenders that typically are jointly involved in loans to an enterprise. The fact that the concentration of the local credit sector has led to the existence of just four core banks has allowed for easier communication among them, and common ground has already been found.
The main criteria for the assessment process will be cash flow and the operating profits index, which determines the extent to which an enterprise can finance its obligations from its annual sales. A key element that must also be taken into account is whether each company is outward-looking and contributes to the country’s exports.
