Banks consider Italian solution for cutting bad loans and staff

Greek banks are examining various scenarios for ridding themselves of more nonperforming loans and reducing their staff, in an effort to meet commitments for a rapid streamlining of financial figures and cost reduction.

These twin objectives are meant to take the local credit sector out of the vicious cycle of losses, lifting the reservations of investors who have turned their back on local lenders, leading to losses of almost 50 percent in their capitalization in just six months.

The solution of selling bad loans along with the transfer of staff to the new company that will undertake the management of the NPL portfolio, has already been implemented by Italian bank Intesa, which transferred NPLs worth 11 billion euros to Sweden’s Intrum. The management of those loans has been granted to a new Italian company, jointly created by Intesa and Intrum, to which the Italian bank has transferred 600 staff from the unit that managed bad loans.

Greek banks are looking into this solution as part of efforts to also slash operating costs, which have been on the rise recently, partly due to the voluntary redundancy programs implemented. The need to cut spending is directly linked to reduced revenues from banking activity – especially loan issues – due to the absence of any substantial investment interest and the lack of demand for loans by households or enterprises.

The Intesa solution is being examined in combination with the so-called Italian model – the securitization of bad loans on state guarantees. This solution has already been approved by the European Union’s competition authorities (DG Comp) and has been applied to Italian lenders that have recently sold loans and securitized portfolios in large figures.

A similar proposal has also been processed by the Hellenic Financial Stability Fund and JP Morgan, on the request of the Finance Ministry, with Minister Euclid Tsakalotos expressing his intention to support such a plan at the DG Comp when he addressed the Capital Link forum in New York last week.

However, in Greece’s case such a scenario would run into the problem of the country’s junk rating, unlike Italy’s which is still at investment grade. HFSF sources say this element is not prohibitive and will be factored into the price the bond will achieve.