Greek banks wrote off nonperforming loans totaling 2.5 billion euros last year, a new record, while senior bank officials say that this year write-offs will rise even higher, exceeding 3 billion, making cancellations one of the credit sector’s main weapons in its ongoing battle to reduce the amount of bad loans in its portfolios.
According to their commitments to the eurozone’s Single Supervisory Mechanism, local lenders will have to reduce their nonperforming credit exposure from 108 billion euros today to 65 billion at the end of 2019. This target of a 43 percent reduction is quite ambitious.
The banks’ planning provides for about half of that reduction to come in the form of write-offs, 30 percent through loan restructuring and the rest by way of selling bad loans to third parties.
Senior bank officials note that the target of NPL reduction set by the SSM was exceeded in the last quarter of 2016, creating a safety cushion in the process. However, this was cancelled out at the start of the year as the continued delays in the completion of the bailout review and the ensuing uncertainty led to the creation of fresh NPLs. Banks estimate that nonperforming loans increased by 1 billion euros in January, while no improvement was noted last month either. This raises the prospect of banks losing the cushion they had created in the latter half of 2016 and missing their target for Q1 of 2017.
Besides the concerns about a new fiscal derailment, the increase in bad loans is also due to high expectations as regards the new extrajudicial mechanism for the settlement of debts: A large number of borrowers have rejected the banks’ proposals for the restructuring of their debts in the hope that better terms will be introduced.
Many believe that their debts will be written off.
Credit sector officials note that significant ground has been lost due to the bailout review delay, but add that some of it could be recovered if the talks are swiftly concluded and Greece enters the European Central Bank’s bond-buying program (QE).