Banks waiting for three key legislative steps to tackle NPLs


Three crucial legislative interventions are still pending for the handling of nonperforming loans without which banks cannot take full action to tackle the problem. Banking sources say that the outstanding issues must be settled as quickly as possible, otherwise there is a clear risk that lenders will fail to meet their commitments to the European Central Bank’s Single Supervisory Mechanism for the reduction of bad loans in 2017.

The three pending issues are the out-of-court settlement process, the immunity of bank and tax officials who get involved in the restructuring of corporate loans and the accounting and tax handling of the losses that will be incurred by banks from the sale or writeoff of NPLs.

All three of these issues constitute milestones for the completion of the second bailout review, even though according to the bailout agreement of 2015 they should have been completed by February 2016.

Bank sources say that meeting the NPL reduction targets for 2017 will be crucial to strengthening investor confidence and will also go a long way toward streamlining and bolstering the lenders’ financial reports.

As Bank of Greece Governor Yannis Stournaras has stressed, reducing bad loans will have multiple benefits for the lenders and the Greek economy: It will result in the improvement of the quality of their loan portfolios, in the strengthening of liquidity, in the boosting of the banks’ capital adequacy and in the restructuring of the economy’s production model.

Right now, nonperforming loans account for about 50 percent of Greek banks’ combined portfolios, amounting to over 100 billion euros, and bank managers have promised the SSM to reduce that amount to 60 billion by the end of 2019. Lenders will be monitored every quarter regarding their progress toward meeting their targets. In the case that they are found to be systematically falling short, the SSM will impose penalties that may go as far as launching new share capital increases.

Credit sector officials add that besides the necessary legal interventions the effective tackling of bad loans will require a favorable financial environment, something that hinges on the completion of the bailout review.