ECONOMY

Banks see pace of bad loans slowing

Senior bank officials are optimistic that a rise in nonperforming loans will slow down in 2010. There are two reasons that make banks more upbeat: refinancing programs and the state of the Greek economy, which appears to be better than initially thought. Bank officials in Greece have even left open the possibility of the year ending with some positive surprises and 2011 starting off with improved prospects. At the end of 2009, the rate of nonperforming loans hit 7.7 percent with forecasts predicting the figure would rise to just below 9 percent in 2010. Initial estimates placed the figure for this year at 10 percent. Refinancing programs for households and businesses have given loan holders some breathing space while also providing a boost to bank balance sheets. Customers unable to meet their monthly payment obligations can obtain more favorable credit terms in a new lending agreement that keeps the amount from being placed on the lender’s bad debt pile. The change in credit terms may extend the term of the loan, which leads to a lower monthly payment, introduce a «grace period» (where only interest is paid) or reduce the interest rate, in the event that the customer improves the collateral backing the loan. This provides the financial system with more flexibility but should not be used as a way to sweep problems under the rug. The Bank of Greece, the country’s central bank, has instructed lenders to stick to regulations and finance only viable operations.