NPE reduction conundrum for local banks
The new targets for the reduction of bad loans that Greek banks have to present to European authorities appear very hard to attain without the need for new funds.
The targets will provide for the reduction of nonperforming exposures (NPEs) to 15-20 percent by the end of 2021 from a current level of 47.7 percent, combined with the increased provisions they need to make for bad loans and for the real estate properties banks are amassing on their books.
The equation on which local lenders are working at the moment does not lead to any new capital increases, but the markets appear reserved regarding the efficiency of the instruments banks have at their disposal: foreclosure auctions, the extrajudicial debt settlement mechanism and the changes to legislation protecting debtors, known as the Katseli law.
Concerns stem from the fact that debt settlements are not paying off and the targets for NPE reduction are mainly being achieved through debt write-offs. It is no coincidence that in last week’s roadshow of the Greek stock market in London the representatives of Greek banks were peppered with questions by foreign institutionals on the issue of bad loans.
