Banks wait­ing for three key leg­isla­tive steps to tackle NPLs

Kathimerini English - - Focus - BY YIAN­NIS PAPADOYIANNIS

Three cru­cial leg­isla­tive in­ter­ven­tions are still pend­ing for the han­dling of non­per­form­ing loans with­out which banks can­not take full ac­tion to tackle the prob­lem. Bank­ing sources say that the out­stand­ing is­sues must be set­tled as quickly as pos­si­ble, oth­er­wise there is a clear risk that lenders will fail to meet their com­mit­ments to the Euro­pean Cen­tral Bank’s Sin­gle Su­per­vi­sory Mech­a­nism for the re­duc­tion of bad loans in 2017.

The three pend­ing is­sues are the out-of-court set­tle­ment process, the im­mu­nity of bank and tax of­fi­cials who get in­volved in the re­struc­tur­ing of cor­po­rate loans and the ac­count­ing and tax han­dling of the losses that will be in­curred by banks from the sale or write­off of NPLs.

All three of th­ese is­sues con­sti­tute mile­stones for the com­ple­tion of the sec­ond bailout re­view, even though ac­cord­ing to the bailout agree­ment of 2015 they should have been com­pleted by Fe­bru­ary 2016.

Bank sources say that meet­ing the NPL re­duc­tion tar­gets for 2017 will be cru­cial to strength­en­ing in­vestor con­fi­dence and will also go a long way to­ward stream­lin­ing and bol­ster­ing the lenders’ fi­nan­cial re­ports.

As Bank of Greece Gover­nor Yan­nis Stournaras has stressed, re­duc­ing bad loans will have mul­ti­ple ben­e­fits for the lenders and the Greek econ­omy: It will re­sult in the im­prove­ment of the qual­ity of their loan port­fo­lios, in the strength­en­ing of liq­uid­ity, in the boost­ing of the banks’ cap­i­tal ad­e­quacy and in the re­struc­tur­ing of the econ­omy’s pro­duc­tion model.

Right now, non­per­form­ing loans ac­count for about 50 per­cent of Greek banks’ com­bined port­fo­lios, amount­ing to over 100 bil­lion eu­ros, and bank man­agers have promised the SSM to re­duce that amount to 60 bil­lion by the end of 2019. Lenders will be mon­i­tored ev­ery quar­ter re­gard­ing their progress to­ward meet­ing their tar­gets. In the case that they are found to be sys­tem­at­i­cally fall­ing short, the SSM will im­pose penal­ties that may go as far as launch­ing new share cap­i­tal in­creases.

Credit sec­tor of­fi­cials add that be­sides the nec­es­sary le­gal in­ter­ven­tions the ef­fec­tive tack­ling of bad loans will re­quire a fa­vor­able fi­nan­cial en­vi­ron­ment, some­thing that hinges on the com­ple­tion of the bailout re­view.

Bank of Greece Gover­nor Yan­nis Stournaras has re­peat­edly said that the re­duc­tion of the stock of non­per­form­ing loans will have mul­ti­ple ben­e­fits for the credit sec­tor and the en­tire econ­omy.

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