Greek banks are about to considerably increase their provisions for nonperforming loans in the last quarter of 2015, which along with the incorporation of a series of expenditures will lead to a notable rise in losses.
In practical terms, this means that the lenders will shield their financial reports of 2015 so as to minimize the emergence of significant losses for the current year. The four systemic banks are set to issue their final 2015 financial results in early March.
The banks are desperate to avoid recording any losses in the 2016 financial year as that would have to lead to the issue of common shares for the Greek state in order to cover the part of the deferred tax assets that is guaranteed by the latter.
In 2014 the government strengthened the banks’ capital bases ahead of the European Central Bank stress tests by acknowledging the lenders’ deferred tax assets, so that the ECB would include them in the banks’ capital.
Therefore the state has guaranteed that the banks will enjoy the benefit of the deferred taxation even if they do not show any profits. This means that in case of losses recorded in a year the state must pay the amount of the deferred tax acknowledged in cash in return for common shares.
Bank officials note that conditions in the credit sector could improve considerably in 2016 provided the bailout review is concluded swiftly and the economy starts improving, while the initiatives for the handling of nonperforming loans could offer further momentum.