NPL problem is huge but road is now open for its management

Seven out of 10 loans that had been entered into a payment scheme by households and corporations struggling under the crisis have now been classified as nonperforming as the debtors were unable to meet the installment deadlines, according to the monetary policy report that Bank of Greece Governor Yannis Stournaras published this week.

This reflects the failure of banks to tackle of bad loans, as they have not found sustainable solutions to the problem, according to analysts.

BoG data show that total credit exposure (which includes NPLs as well as loans with a high risk of turning bad) amounted to 45.2 percent of all loans at the end of March, from 44.2 percent in December and 39.9 percent in December 2014. That credit exposure includes 54.7 percent of consumer credit, 41 percent of mortgages and 43.8 percent of corporate loans. In the economy’s main sectors, such as construction and industry, the rate of credit exposure tops 50 percent.

The report stressed that NPLs constitute the biggest problem banks have to tackle today. “Radical management, combined with the recent recapitalization of the domestic banking system and the expected increase in liquidity after the completion of the bailout review, should strengthen the capacity of the credit institutions to finance the country’s economic recovery,” the report read.

Bank officials insist that their inability to tackle this major problem efficiently until now has to a great extent been due to the political instability and uncertainty, as well as the chaotic legal system, which allows little room for maneuver. They note that now the bailout agreement has been updated and legislative changes have been implemented, the way has been paved for better handling of the issue.

As the BoG report stated, significant regulations have been adopted, providing for the acceleration of procedures in courts, the adjustment of overindebted households’ debts, and the simplification of the streamlining and resolution of enterprises. Furthermore, the development of a secondary loan market, the reform of the extrajudicial debt arrangement framework, the improvement in justice infrastructure and in the specialized know-how of judges, among others, constitute key points for the banking systems, allowing lenders to become much more flexible.

The central bank added that a more active policy is required by the commercial banks in managing NPLs, through a greater emphasis on longer payment plans, on the coordinated handling of borrowers from two or more banks, and on the restructuring of viable enterprises.