Dealing with the problem of nonperforming loans constitutes the local credit system’s biggest challenge now that Greek banks have successfully completed the stress tests, confirming their capital health, and the economy has returned to growth.
The NPL figures are shocking: From 10 billion euros in 2007, bad loans have now exceeded 77 billion, which means that 35 per cent of all loans are not being serviced properly.
The rise of nonperforming loans has been meteoric. They amounted to just 4.5 per cent of all loans in 2007, then doubled to 9 per cent by June 2010, had exceeded 18 per cent by March 2012 and stood at 30 per cent in September 2013.
At the end of this last September bad loans had surpassed the 35 per cent mark, according to estimates by bank officials, although their growth rate is now starting to come down on a month-on-month basis.
More encouraging is the news that those joining the list of debtors who do not repay their loans are mainly borrowers who had already faced problems in the past and have entered a settlement program, rather than new households or enterprises.
It’s true that the amount of 77 billion euros is of huge concern but banks have been adhering to a particularly aggressive policy to increase provisions in recent years. According to nine-month data, between 55 and 60 per cent of bad loans have already been covered by provisions.
Bank officials say that Greece is very close to NPLs reaching a peak as a percentage of all loans. They estimate that the bad loan index will reach its highest point by the end of the first half of 2015 before gradually starting to decline. Banks expect to see the ratio drop considerably from 2016, as besides the drastic reduction in bad loans, lenders will have also begun a credit expansion phase that will see the balance of loans grow.
The efficient handling of the problem of nonperforming loans is, according to senior bank officials, a priority and one of the necessary conditions for the revival of the country’s economy.
As the chief executive officer of Eurobank, Christos Megalou, stressed this week, “the reinstatement of thousands of professionals and small enterprises in the production process may have multiplying benefits for the economy, particularly in reducing unemployment, increasing investments, reverting transaction behaviour to normal, halting market distortions, releasing entrepreneurship and increasing public revenues.”
Megalou added that spreading the costs of loan settlement between the banks and the state allows thousands of professionals and small enterprises to benefit and retrun to sustainability.