Greece to EU: Bad loans plan not state aid to banks
The government is moving quickly to develop plans to reduce the retail banks’ nonperforming loans, hoping it will make up for the wasted time under the SYRIZA government.
Speeding up the banking sector reform is a priority for the government, since the credit rating agencies say that the volume of bad loans is one of the biggest obstacles to upgrading the country’s debt rating, which, in turn, is holding back economic growth.
George Zavvos, the deputy finance minister in charge of dealing with the banking sector, is trying to convince the European Union’s Directorate-General for Competition to agree with the Asset Protection Scheme devised by the Hellenic Financial Stability Fund (HFSF). The plan involves the securitization of the bad loans and the Commission’s main concern is that it does not become a vehicle for state aid to banks.
If the Commission, specifically Competition Commissioner Margrethe Vestager, gives the go-ahead, the plan will be implemented by a bill that will be submitted to Parliament, most likely in October. The HFSF plan will be supplemented by a Bank of Greece plan which the previous government had frozen.
Nonperforming loans stood at about 80 billion at the end of the first quarter, accounting for 45.2 percent of total loans. The creditors believe that the banks’ target of reducing bad loans to 26 billion euros by the end of 2021 is very ambitious and will still leave them saddled with bad loans higher than the EU average.
Credit rating agency Fitch views the government’s efforts favorably: “The implementation of the two schemes could accelerate the improvement in asset quality of banks, which is a key rating sensitivity, while helping to increase confidence in the system and improve profitability,” says Pau Labro, director of Financial Institutions at Fitch. “The fact that the government is stepping up the process... is positive news... However, the final details of the scheme are important and we will also have to assess the potential fiscal implications,” adds Michele Napolitano, head of Western Europe Sovereigns.