Banks eye soft landing once loan freeze ends
Banks are making plans to ease borrowers back into normal debt servicing schedules once the repayment holidays introduced during the coronavirus crisis come to an end so they can avoid a sudden shock that could prompt a wave of defaults.
Banks in Greece deferred repayments on about 30 billion euros’ worth of loans last year to help 400,000 borrowers – individuals and businesses – cope with the financial fallout from the pandemic, the country’s bank association has said. But under European Banking Authority rules, deferral periods cannot exceed nine months, which means time is running out and borrowers must soon resume normal payments. There are concerns that a sudden return to normal repayments by borrowers weakened by coronavirus lockdowns could add to the banks’ already high levels of impaired loans. As a result, the banks are looking at a variety of “step-up” repayment plans. “It is necessary to have such step-up payment plans to avoid cliff effects,” Bank of Greece Governor Yannis Stournaras told Reuters. “But banks need to take proper provisions.” The central bank has estimated that banks are likely to be facing €8-10 billion of new impaired loans as a result of the pandemic. The amount of loans under payment deferrals, about 17.4% of Greece’s projected GDP for this year, underlines the seriousness of the issue. Credit ratings agency Standard & Poor’s said it is “a complex but manageable predicament” for the banks.