Before it can become a properly functioning economy with credit expansion, Greece needs a shift in its borrowing culture, in its justice system, in the speed at which rules and decisions are implemented, and in the legislation that was meant to protect those genuinely suffering from the crisis but has benefited strategic defaulters, experts told a conference on investing in bad loans held in Athens on Monday.
Meeting the nonperforming loans reduction target set by the European Central Bank will be a great challenge for the local credit system, as despite the progress recorded last year, with banks exceeding their goals in this direction, “the agreed targets are considerably back-loaded,” Bank of Greece council member Ilias Plaskovitis warned at the first annual Investors Conference on Greek and Cypriot NPLs.
A change in mentality among borrowers may also be key: “Are we developing the wrong kind of culture?” asked Solon Molho, contributor to the Economist Intelligence Unit. Using a chart that tracked the course of the percentage of nonperforming exposures in Greece and the percentage of ruling party SYRIZA in elections over the last 13 years, Molho illustrated the remarkable similarities in the two rates. He also showed that despite the relative uptick in gross domestic product, the generation of capital remains stagnant.
For foreign funds to invest in Greek NPLs, improvements in legislation are not enough, as enforcement remains a drawback: “There are major problems with the justice system. It was surprising that the bailout reforms had not, until recently, tackled that issue,” stressed Apostolos Gkoutzinis, of UK law firm Shearman & Sterling. “We need faster justice, more judges and better training of lawyers too,” added Prokopis Dimitriadis of the Lambadarios Law Firm.
“What we lack in buckets in Greece is speed,” seconded Sabina Dziurman, the European Bank for Reconstruction and Development’s country director for Greece. “It took longer to introduce the Out-of-Court Workout and the e-auctions. We lost a couple of years perhaps.”
Bank representatives asked for changes to the so-called Katseli Law that protects debtors’ assets, with Eurobank board member Tassos Panoussis noting that “strategic defaulters are hiding behind the law, and 40-45 percent of applications for protection are rejected” because they do not qualify.