Greece is NPL cutting laggard

At a time when nonperforming loans are decreasing significantly in the eurozone, Greece is not only the member-state with the highest NPL rate, but it also has the lowest reduction rate, according to the third progress report on the issue by the European Commission, published on Wednesday.

The report referred to the second quarter of this year and revealed that bad loans in the European Union have fallen to 3.4 percent of all credit, from 4.6 percent a year earlier.

Greece saw a reduction in its bad-loan rate to 44.9 percent at end-June from 46.9 percent in June 2017, but at just two percentage points, this reduction is the smallest among the countries facing serious NPL problems. The Greek rate is not just 13 times the EU average, but it’s also much higher than the second highest in the bloc, that of Cyprus, which came to 28.1 percent. Cypriot banks managed to slash their rate by 5.2 percentage points in just one year.

“In Croatia, Cyprus, Hungary, Ireland, Portugal and Slovenia we have seen reduction of three percentage points or more,” European Commission Vice President Valdis Dombrovskis noted yesterday. He added that certain weak points remain that must be tackled, and highlighted the particularly high NPL rates in Greece and Cyprus.

Besides the financial repercussions NPLs have on the economy, this problem is the main obstacle to the completion of the banking union, with the countries of the European North arguing that they cannot accept a European deposits guarantee unless the bad loans in Southern countries’ bank portfolios are drastically reduced. That is why the Commission proposed an action plan last March that focused on encouraging the development of secondary markets where lenders could sell their NPLs to hedge fund managers and investors.

The Commission intends to have made definitive decisions by the European elections in May 2019, not only as regards the above proposal but also on all issues concerning bad loans, although the proposal has not been approved by the European Council or Parliament.