Greek central bank mulls ‘bad bank’ to clean up sour loans

Greece’s central bank is looking at the creation of a “bad bank” to deal with sour loans weighing down its banking sector, and which are likely to rise from the Covid-19 fallout, it said on Thursday.

The extent of the rise in non-performing loans could not be predicted, it said in a report published twice-yearly, but said tackling the issue was a priority.

“The Bank of Greece is processing a specific proposal for the implementation of a vehicle to comprehensively deal with problematic assets (Asset Management Company – AMC) for Greek banks,” it said.

“Dealing with a large pool of NPLs, which, contingent on macroeconomic developments, will increase, is a priority,” the bank said.

Greek Central Bank Governor Yannis Stournaras has previously said the country will need extra tools, and a bad bank to ring-fence the burden of non-performing loans could be one option.

The ratio of bad loans to total loans was at 37.3% at the end of March 2020 this year and banks aim to bring it down to below 20% by the end of 2021.

Greek banks already have one tool, the Hercules asset protection scheme (HAPS) that was put in place last year to help them offload up to 30 billion euros of bad loans.

Similar to Italy’s GACS model, the scheme offloads debt by bundling bad loans into asset-backed securities that can be sold to investors.

[Reuters]