Bank of Greece fears fast rise of consumer loans
Although total lending in Greece remains at relatively low levels compared to the rest of the eurozone, the Bank of Greece is worried by continued rapid credit expansion, particularly in retail banking, and is adopting measures to prevent a rise in inflation and the accumulation of non-performing loans. The central bank’s concern is focused on certain categories of consumer lending, such as personal loans, and a few days ago ordered commercial banks to raise their provisions for such overdue loans – but lowered them for mortgages. Bank officials take the view that the measures will have no practical impact, as most of the large banks had already raised the provisions themselves for consumer loans overdue more than 12 months, and the changes are not seen as having any substantial effect on interest rates. But the Bank of Greece, nevertheless, is advising self-restraint, warning that the likely prospect of rising interest rates, combined with forecasts of a slowdown in the growth of the economy, may lead to many households’ economic strangulation. Officials are also concerned that the continued credit expansion, combined with intense competition among banks, is likely to lead to some banks underestimating their credit risks. According to Alpha Bank’s latest «Bulletin of Economic Developments,» the year-on-year growth rate of credit expansion to the private sector fell to 15.8 percent in November 2004 from 16.7 percent in October and 17 percent in September. However, if corporate bond loan issues and securitizations of mortgages are taken into account, the rate of credit expansion to the private sector is 18.7 percent, representing rises of 11.7 percent in lending to enterprises and 29.9 percent to households. In November, corporate lending represented 43.1 percent of gross domestic product (GDP), against a 59 percent average in the eurozone. Households are even less indebted, with their total corresponding to 31.2 percent of GDP, when the eurozone average is 54.9 percent. The potential for the growth of home loans remains significant, as their total represents just 20.2 percent of GDP, against 38.9 percent in the eurozone – which explains why the central bank lowered its requirements in the relevant provisions. Total Greek consumer credit corresponds to 11 percent of GDP, against 16 percent in the eurozone.
