Out of the 21 billion euros in loans under a moratorium due to the pandemic, more than 80% had previously been performing, according to the Bank of Greece’s Credit Stability Report published on Thursday.
Those loans account for 15% of the serviced portfolio of Greek banks (12% of their overall portfolio) and given that those loans have a relatively reduced provision coverage for credit risk (about 3%), the prospect of them turning bad would endanger the already fragile capital adequacy of the local credit system, the report warned.
It added that after a sudden 10% contraction of the economy in 2020, an increase in nonperforming loans appears inevitable, and the amount of new NPLs the pandemic is likely to leave behind it will range between 8 and 10 billion euros.
That amount is set to further increase the already huge stock of NPLs Greek banks have, and which after the completion of scheduled securitizations in the context of the current mechanism of state guarantees (Hercules) will amount to 25% of their portfolio. In contrast, the average bad-loan rate in the eurozone stands at 2.9%.
BoG data show that the frozen loans are 60% corporate credit and 40% loans to individuals. For most loans the moratorium was due to expire at end-2020 or in early 2021.
“Banks have to acknowledge the increased credit risk in their financial reports and secure the necessary capital reserves so that they can tackle the prospect of a significant increase in NPLs,” the central bank stresses, just as 34% of loans whose repayments have been suspended for now are characterized as having an increased credit risk.
That is because a significant share of the loans on ice concern very small, small and medium-sized enterprises that have been hurt by the pandemic in a period when they were only just starting to recover from the previous crisis but still had weak fundamentals.
Therefore the Bank of Greece is sticking to its proposal for the creation of an asset management company for tackling the problem of deferred tax assets.