Dombrovskis warning on NPLs

Dombrovskis warning on NPLs

Greece passed the test of the fifth post-bailout assessment on Wednesday as the European Commission hailed the country’s progress on reforms and its fiscal position, although concerns remain on the nonperforming loans front.

The Commission’s post-program surveillance report said that Greece’s fiscal and economic prospects have improved and the country is once again projected to exceed the primary budget surplus target of 3.5 percent of gross domestic product. However, it notes that the planned easing of policy this year (on the solidarity levy, the Single Property Tax – ENFIA and social security contributions) may put off the gradual reduction of the corporate tax to 20 percent.

Speaking to Kathimerini, Commission Vice President Valdis Dombrovskis said Greece has generally achieved good progress in fulfilling its reform pledges. However, he did express concern regarding bad loans: “Greece continues to have by far the biggest ratio of nonperforming loans in the EU,” he said, adding that Brussels supports the Hercules asset protection scheme aimed at reducing the stock of NPLs, but “it is important to avert the creation of new NPLs.” To achieve that, he noted, Greece needs the appropriate legal framework on bankruptcy and on imposing the terms of loan contracts.

The Latvian official stressed that there is still a problem with strategic defaulters that has to be tackled, and that the very high rate of bad loans is preventing banks from issuing credit to the real economy.

Dombrovskis pointed out that the next milestone will be in May, when the creditors will examine whether Greece has implemented its supplementary pledges, including reforming the bankruptcy code, in the context of the sixth post-bailout assessment. “Depending on the progress to be achieved by then, the member-states may discuss the possibility of Greece using the SMP/ANFA profits for the reduction of its financing needs or the strengthening of investments at the Eurogroup in June.”

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