A month with just 16 working days is a bad month for banks and their bid to reduce nonperforming loans. April was such a month as it saw an uneven battle from the banks’ side to cut their NPLs following a difficult first quarter.
The reason is simple: Banks only had 16 days at their disposal to contact their clients and propose solutions for their debts. Debtors on the other hand had an entire 30 days to put off the settlement of their arrears, while the Easter period did nothing to encourage them to seek an arrangement with banks.
Data from the Greek lenders showed that the trend for the creation of new bad loans grew last month as 500 million euros of new NPLs were added to the pile of 2 billion euros from the first three months of the year.
May appears to be better so far, though there are no solid figures for now and the net result may well not lead to a substantial reduction to the 2017 NPL sum.
Developments have done nothing to help banks’ efforts to slash bad loans, as first-quarter financial results have revealed. Despite the reduction of nonperforming exposures (NPEs), the NPLs that are the loans whose repayment has been delayed for over 90 days increased in many categories. The difference between NPEs and NPLs is that the former also include loans that have entered a settlement agreement.
The difference may be small but it has been adopted as a rule by the Single Supervisory Mechanism of the European Central bank after realizing that many banks – not just in Greece – would make a debt arrangement and immediately shift the loan from the NPL portfolio to that of the serviced debt in order to display a better picture.
That practice, however, would only have a short-term benefit, as debtors often were once again unable to cover their obligations and made their loan revert to nonperforming. The banks, therefore, were forced to adopt the more representative practice of having to reduce their NPEs. For a loan to shift away from the NPE portfolio and be considered properly serviced it needs to be repaid for two years.
Consequently, the optimism generated in banks from the relative reduction in NPEs over the first quarter of the year has been offset by the increase in new NPLs. The increased tax burden for taxpayers in the second half of the year does not bode well either.