BoG recommends specialized entity for bad loans

The Bank of Greece is in favor of the creation of a “specialized entity” for the management of nonperforming loans (NPLs), saying in its annual report issued on Thursday that such an option would assist banks in “financing healthy entrepreneurship.”

In a special chapter the report analyzes the central bank’s forecasts on the progress of bad loans, noting that “the implementation of such a venture would require funding,” which “ideally” would have to come “from sources outside the banks’ financial accounts and the state budget [but without] creating any new capital requirements for lenders.”

The BoG estimates foresee the growth of NPLs stopping within 2015, based on the forecasts for a drop in unemployment and an upturn in the economy as reflected in the midterm fiscal program. The most favorable scenario provides for a reduction in the bad loan rate by about 8 percentage points up to the first quarter of 2016 – or to below 27 percent from the 34.2 percent at end-September 2014, the latest official rate quote by the BoG. A more moderate scenario provides for a rate of between 29 and 32 percent.

A BoG survey has also shown that a small part of new bad loans is being created by borrowers who choose not to pay their dues even though they can afford to.