ECONOMY

Commission in favor of bad bank

commission-in-favor-of-bad-bank

The European Commission is expecting strong pressure on the capital position of Greek banks from the pandemic, leading to further growth in bad loans and the need for additional provisions. In its enhanced surveillance report released on Wednesday, the European Union executive body stressed the need for supplementary systemic solutions that will help to tackle the problem.

The Commission’s remark constitutes an indirect call for a solution such as an asset management company – i.e. a bad bank. The fact that this is coming at a time when the Bank of Greece has formally submitted such a proposal to the government makes it even more significant, as this is the first public statement by the Commission on the matter.

The financial impact of the new crisis, Brussels notes, will suppress the already low profits of local lenders, with debt securitizations set to add to that effect even if they contribute to the streamlining of banks’ financial reports: Besides the one-off loss for banks’ capital, they lead to a permanent loss of revenues for banks as those loans leave banks’ assets and stop generating interest.