NPLs: Achilles heel of the banking system
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.