As householders resort more and more to bank loans, as the economic situation becomes more and more uncertain, and given the prospect of an increasing number of banks raising their interest rates, the element of risk is rising proportionately. More to come It seems likely that banks will be auctioning more and more property as homeowners become increasingly unable to pay off loans, a trend confirmed by bankers’ initial estimates for this year. Banks held over 6,000 auctions of property during 2002. Initial indications for 2003 are for a further increase of about 20 percent, given the expected continuation of the recession. Along with the prospects for a rise in interest rates, and above all a reduction in consumers’ disposable incomes, this will affect the property and housing loan market that has seen a boom in the last two years. Loan market The euphoria prompted by low interest rates, particularly for housing credits, where rates dropped to below 4 percent, appears to be over, leaving in its wake a huge rise in demand for housing loans. Also of concern are the loans taken out by small and medium-sized businesses, where interest rates are also on the rise. According to Bank of Greece figures for 2002, the rate at which Greeks took out loans rose by 32 percent, although it dropped slightly toward the end of last year compared to the same months of the previous year. Business loans have increased considerably, with medium- to long-term loans (over one year) increasing by over 28 percent, due to the general climate of recession and the inability to find other sources of capital. Of the average 6,000 auctions the five major banks are involved in each year – with National and Commercial banks taking the lion’s share – most involved urban properties whose owners were unable to repay their loans. Banks claim that auctions are carried out as a last resort, saying that credit organizations have no reason to get involved in time-consuming and costly procedures, since their job is banking services, not real estate. Nevertheless, the fact is that auctioning of urban property is the way the banks usually get their money back. By contrast, in business loans, company staff and the State have first option on the auction product. In these cases, despite the fact that the total outstanding balance on the loans is large, banks do not manage to get their money back, since a factory is much harder to liquidate than a home. Fields are even harder to sell. Renegotiating loans Banks claim they try to exhaust all avenues of cooperation with the client, proposing new loans to pay off the old loans in arrears. A worsening economy is obviously a form of pressure on the banks themselves. The recent decision by the Bank of Greece raising the ceilings on loan provisions for bad debts is simply one more reason for them to want to try to satisfy their demands, when not even they themselves deny the risks involved in expanding consumer and housing credit.