NPLs: Achilles heel of the bank­ing sys­tem

Financial Mirror (Cyprus) - - FRONT PAGE -

Hav­ing com­pleted cap­i­tal in­creases of 8.3 bln eu­ros, which more than cov­ered the cap­i­tal needs iden­ti­fied by the Bank of Greece (BoG) un­der the base­line sce­nario, the sin­gle most im­por­tant risk for Greek banks re­mains the non-per­form­ing loans (NPLs).

Ac­cord­ing to the IMF, the banks’ NPLs, de­fined as the loans past due for more than 90 days, re­main the Achilles heel of the lo­cal bank­ing sys­tem.

Set­ting aside the qual­i­ta­tive el­e­ments, it is in­ter­est­ing to fo­cus on some dis­crep­an­cies re­lated to the NPL fig­ures re­leased by the BoG and the troika in­sti­tu­tions so far in 2014, writes Manos Gi­ak­oumis of the pol­icy and news site MacroPo­lis.gr.

In its in­terim Mon­e­tary Pol­icy re­port, the Bank of Greece re­vealed that the NPL ra­tio rose to 31.9% at the end of De­cem­ber 2013, from 24.5% at the end of 2012. The break­down per sec­tor showed con­sumer credit NPLs re­main at the top with 47.3% (from 38.8% in 2012), fol­lowed by cor­po­rate NPLs at 31.8% (from 23.4%) and hous­ing loans at 26.1% (from 21.4%).

In its fourth re­view re­port of the eco­nomic ad­just­ment pro­gramme, the Euro­pean Com­mis­sion (EC) came up with a higher num­ber of the to­tal NPL ra­tio at 33.1% (from 25.5% in 2012). Since both fig­ures are dif­fer­ent by more than one per­cent­age point (pp) com­pared to those re­ported by the BoG, we could con­clude that the two in­sti­tu­tions use a slightly dif­fer­ent method­ol­ogy, Gi­ak­oumis added.

The IMF chose to point out in its fifth re­view that NPLs and re­struc­tured loans - which ac­cord­ing to Black­rock’s as­set qual­ity re­view have a high risk of re­newed de­fault – reached 40% of to­tal loans by the end of 2013.

Cal­cu­lat­ing the NPL ra­tio for the top four banks us­ing the fig­ures pro­vided in their 2013 re­sults, we get a NPL ra­tio at 32.6% for the Greek mar­ket and 30.4% at group level.

In ab­so­lute fig­ures, NPLs amounted to 69.4 bln for the four sys­temic banks, which cu­mu­la­tively con­trol around 95% of the loans mar­ket. More than a third of the top four banks’ NPLs are held by Pi­raeus, which has also the largest mar­ket in loans at 32.4%. In con­trast, NBG’s share of NPLs stands at 18.4%, 3 pp lower than its re­spec­tive loan mar­ket share. This is ex­plained by the bank’s limited M&A ac­tiv­ity in the Greek mar­ket, while the other banks have been neg­a­tively af­fected by the legacy NPLs of the ac­quired banks.

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