Political storm, NPLs delay issue

The Finance Ministry is putting off the issue of a five-year bond, which is all set in technical terms, until the domestic political dust settles and the effort to reduce the credit sector’s bad-loan stock results in a breakthrough.

The anticipated conclusion of the parliamentary process over the Prespes agreement will remove one of the two main obstacles blocking Greece’s return to the money markets, but the issue of the nonperforming loans still needs to be resolved before a new bond issue.

The milestone that Finance Minister Euclid Tsakalotos has set for the process to start in the markets is the submission to the European Commission’s Directorate General for Competition (DG Comp) of the plan for the reduction of banks’ NPLs processed by the Hellenic Financial Stability Fund and presented by the minister to the creditors’ mission chiefs this week.

The government expects that to give the markets a strong signal that the the process of bringing NPLs down to a more manageable level is under way.

The government hopes to have the plan submitted before the end of February, as Brussels’s approval will formally open the way for the implementation of the HFSF blueprint, granting political points to the ruling party ahead of the general election. As Fitch stressed this week, the NPL reduction plan could be a game changer for the sector, decisively helping toward the restoration of confidence.

The planning of the Public Debt Management Agency provides for the issue of a five-year paper whose value will not exceed 2-3 billion euros. Analysts estimate that the interest rate could come to 3.5-3.75 percent, noting the favorable climate in the markets that the government should make the most of.

As Swiss daily Neue Zuericher Zeitung noted, the hunt for yields has resumed internationally, and the next one to benefit from that could be Greece, following the recent issues by Italy, Ireland, Portugal and Spain. After all, the secondary market rate of Greece’s five-year bond has dropped to six-month lows in the last 10 days.