Banks expand NPL solutions

Pressure to clear out nonperforming loans leading lenders to write off uncollectible parts of mortgages

Nearly halfof nonperforming mortgage loans in Greece qualify for the long-term settlement status that allows for a part of the debt to be written off, according to bank estimates.

Credit sector officials tell Kathimerini that banks will soon start actively promoting certain solutions for housing loans that are marginally delayed. These tools will review the finances and assets of borrowers and determine how much of the loan the debtor is able to service, while the nonviable part will be written off. The definitive write-off of the uncollectible part of the debt will take place once the rest is fully repaid.

Strategic defaulters

According to banks’ analyses, of the 21.1 billion euros in bad mortgages, some 40 percent, or 8.4 billion, could be granted the status that will allow for a partial haircut. Another 20 percent of mortgages, amounting to some 4 billion euros, is estimated to concern strategic defaulters.

There is also a 15 percent share that is seen as particularly difficult, and the remaining 25 percent concerns complex cases that require special handling. For instance, borrowers whose income does not allow them to repay a loan who do however possess properties or other assets.

In these cases banks are currently unable to make any settlements that would include a haircut on the debt. Such cases will have to be restricted to other solutions, including the sale of expensive properties to the bank and the rehousing of the debtor in a cheaper home.

The Bank of Greece is putting 1.2464 strong pressure on lenders to accelerate the reduction of NPLs and find long-lasting sustainable solutions.

Recommendation

In a public recommendation the central bank told commercial banks, “In these conditions [banks] must expand as rapidly as possible the solutions they propose to borrowers and proceed to making drastic decisions.”