Banks set aside unprecedented provisions to tackle bad loans

Greece’s main banks have set aside huge provisions in recent years – totaling 50 billion euros – to tackle the problem of nonperforming loans (NPLs). The bulk concern Greece and cover some 60 percent of the loans that are definitively in default.

These are unprecedented provisions in the history of the Greek credit system, resulting from the country’s equally unprecedented six-year crisis that has led gross domestic product into a 25 percent decline. As a result, NPLs soared from 5 percent at the end of 2008 to 34.2 percent in September 2014, meaning that there are bad loans totaling 72 billion euros.

Although there are no official figures yet for the last quarter of 2014 and the start of 2015, there is no doubt that the picture has deteriorated further due to the prolonged political and economic uncertainty. Bank officials estimate that NPLs currently exceed 75 billion euros in total, while there is a significant stock of loans that have been restructured due to borrowers’ inability to repay them on the original terms which will also likely revert to bad loans.

On a group level, Alpha Bank has set aside provisions of 12.8 billion euros, of which 1.85 billion concerned 2014 alone. The stock of provisions covers 62 percent of NPLs. At end-2014 its bad loans ratio reached 33 percent.

National has a bad loans ratio of 24.3 percent at the group level, but in Greece alone bad loans account for 31.9 percent of all loans issued. The bank has set aside total provisions for Greece amounting to 8.7 billion euros, covering 60.2 percent of all NPLs.

The Piraeus Group has set aside total provisions of 16.2 billion euros, including 3.7 billion euros made last year. Its bad loans ratio has reached 38.8 percent and the ratio of provisions to bad loans has reached 57.4 percent.

Last year Eurobank set aside new provisions of 2.2 billion euros, taking its total to 9.7 billion euros, which covers 56.3 percent of bad loans. In December 2014 its bad loans ratio reached 33.4 percent.

As Bank of Greece Governor Yannis Stournaras has stressed, the efficient tackling of NPLs is crucial for banks’ return to profit.

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