Banks deaf to BoG bell

Leafing through Kathimerini’s past issues from the last three years, one finds Bank of Greece Governor Nicholas Garganas (BoG) regularly warning commercial banks about the growth of bad loans and the need to curb lending. However, the warning bell seems to have been heard by all except the banks, which continue to expand their lending facilities. In fact, they do very little toward improving the quality of their loan portfolios, but neither does BoG seem to be doing its best for the improvement of the quality of loans. According to its Monetary Policy Report 2006-07, non-performing loans represent 6 percent of the total – double the European Union average. At the same time, only 61 percent of such loans are covered by provisions, against 69 percent in the EU as a whole. It is no coincidence that Emporiki Bank, which was acquired by France’s Credit Agricole last year, quadrupled its provisions in order to adapt its loan portfolio to the quality standards of the French group. To be sure, Emporiki was no ailing bank; the previous management had written off a large number of «skeleton» loans and increased the coverage of non-performing loans to 74 percent. Greek banks are still buoyant and they now have a golden opportunity – which must not be missed – to restore the health of their loan portfolios. Evidently, when credit expansion rates start falling, their profitability and bad loans will increase considerably and adjusting to reality will be painful. However, banks seem oblivious to such a prospect, imagining even higher profitability rates in their business plans for the next three years.