Bank of Greece reviewing old credit restrictions, may do away with them
The Bank of Greece is considering lifting credit restrictions on consumer and mortgage loans in the near future, with the move conditional on the full operation of the central credit registry, a further slowdown in credit growth, and the progress of the Greek economy, according to Nikos Garganas, deputy governor at the Bank of Greece. The central bank placed curbs on consumer credit several years ago as part of a strategy to contain unrestrained credit expansion. This means that banks cannot provide more than 25,000 euros in consumer loans to any individual, while the limit for personal loans without documentation is set at 3,000 euros. In an interview with Kathimerini English Edition, Garganas said the central bank is reviewing the credit restrictions with the possibility of doing away with them once the central credit registry, Teiresias, is able to provide information on a bank customer’s total indebtedness and credit history. «We have delayed [removing consumer credit restrictions] until Teiresias is operating fully and banks can monitor borrowers’ total exposures,» he said. Set up in September 1997 by the Hellenic Banks Association, Teiresias’s role to date is limited to collecting information on uncovered checks, unpaid bills and bankruptcies. Legal issues related to the protection of personal data has kept the credit registry from expanding its scope to all kinds of loans provided by banks to individuals. Garganas said these have since been resolved and Teiresias should be fully operational «in July or August by the latest.» A decision to loosen credit restrictions is also tied to the need for «further evidence of a consumer credit slowdown.» The sharp fall in lending rates in the runup to eurozone membership and Greece’s strong economic growth in the last two years fueled the credit boom. The central bank’s decision to cut banks’ reserve holdings also added liquidity to the market. According to the Bank of Greece’s statistics, total credit expansion in 2001 reached 16 percent at year-end. Consumer and mortgage credit have been particularly buoyant, with growth exceeding 40 percent and 30 percent respectively for the entire year. Signs are emerging, however, that the frenetic pace of credit expansion could be slowing down although not to levels which the bank would have liked. Up by 20 percent in the first half of 2001, total credit growth by the end of the year fell to 16 percent. Consumer credit also appeared to be slackening off, with growth declining to 42 percent in December 2001 from a peak of 52 percent in June. The mortgage market, on the other hand, has thus far showed no signs of slowing down. Garganas said the important thing is the overall rate of credit growth and all signs point to the continuation of a deceleration. Despite this, the central bank «needs more evidence of a further slowdown» before taking action on credit restrictions, he said. He said the bank has not set any credit target as the situation depends on the country’s economic growth and developments in inflation, but admitted that single-digit growth would be good. Garganas dismissed reports of the banking sector’s heavy exposure to non-performing loans. «Quite frankly, I don’t see any significant risks to the banking system,» he said. «NPLs as a percentage of total assets has fallen considerably, to a level that does not raise concern about the soundness and ability of the banking system. We have seen a fantastic decline in the percentage of NPLs to less than a third of what it was two, three years ago.» The improvement in part has been due to banks restructuring their balance sheets following the stock market boom in the 1990s and the central bank compelling the sector to set aside provisions for NPLs, with the tightest rules applying to consumer loans. Other provisional measures are in the pipeline, although whether the central bank will eventually put these into effect will depend on credit growth. The state’s assumption of NPLs made out to ailing public sector enterprises and the liberalization of external transactions have also corrected the situation. Garganas said the appointment of Bank of Greece governor Lucas Papademos to the vice presidency at the European Central Bank would represent a significant recognition of Greece’s progress and its future role as well as of Papademos’s ability. Papademos is the frontrunner for the ECB post due to be vacated by Christian Noyer in May. Eurozone finance ministers meeting in Oviedo, Spain today are due to announce a replacement for Noyer, with all signs pointing to the Greek candidate as the likely winner. «Both Greece and Papademos have experience in steering a path to convergence. This is an important role especially as the European Union embarks on the enlargement process,» Garganas said.
