Greek Banks at risk from the increase of NPLs

Greek Banks at risk from the increase of NPLs

The OECD expresses great concern for the situation of Greek banks from the risk of a significant increase in “red” loans in its report on the Greek economy, proposing in a rather urgent way to implement the Bank of Greece’s proposal for a bad bank.

According to economists from the Organization for Economic Co-operation and Development (OECD), non-performing loans declined before the pandemic, but remain very high and prevent banks from giving loans. The serious liquidity problems faced by many companies due to the pandemic pose the risk of further increase in non-performing loans, while, regardless of this, the reduction of non-performing loans on bank balance sheets remains extremely urgent.

Greek banks have by far, not only the most “red” loans as a percentage of their portfolio in OECD countries, but they are also the only ones where the “red” loans far exceed the bank funds.

The repair of the banking system must be accelerated, as the report emphasizes. However, doubts are expressed about the adequacy of the tools to reduce non-performing loans, as, like the “Hercules” plan implemented by the government, it will not reduce the “red” loans as much as necessary, while there is a serious problem of quality of bank funds, 60% of which consist of deferred taxes.

There is an urgent need, as OECD recommends to the government, to design and implement a strategy to tackle the problem of deferred taxes while reducing non-performing loans. Insolvency framework procedures should also be consolidated, a better balance between the rights of banks and borrowers should be ensured, and the liquidation of collateral should be accelerated.

OECD clearly takes a position in favor of the Bank of Greece, emphasizing that the proposal for a bad bank has the conditions to face at the same time the problem of deferred tax and NPLs and the relevant planning should be completed. In fact, OECD emphasizes that it is possible to “align” the bad bank plan with the European framework for the consolidation of banks, so as to eliminate the possibility of a “haircut” to creditors and depositors./ibna