In December 2015, non-performing loans in the Greek banking system amounted to €87.2 billion, equivalent to a NPL ratio of 36.6% and a NPL coverage ratio of 67.8%.
The authorities are working with the international financial institutions in developing a framework for the NPL management and removing impediments to sales of distressed portfolios. Among the recently adopted measures were the establishment of a framework for the licensing and operation of specialist servicing firms and the appointment of a Special Liquidator for all credit and financial institutions under special liquidation.
There have been no recent transactions in NPL portfolios, though Greek banks are expected to bring such portfolios to the market in the near future. Moreover, European investors and specialised restructuring platforms are anticipating the emergence of a secondary NPL market in Greece and are establishing diverse schemes and partnerships.
A conference organised jointly by EBRD and the Bank of Greece in March 2016 reviewed progress in implementation of these measures.
Highlights on NPLs (click to enlarge)
Assessment of NPL Burden and Corporate Debt Distress
Speech by Bank of Greece Governor Yannis Stournaras at the 82th Annual Meeting of Shareholders, 26 February 2015
In 2015, the stock of non-performing loans increased. This deterioration was visible and similar in size (roughly 4 percentage points) across all loan categories. In particular, the non-performing exposure (“NPE”) ratio reached 55.4% for consumer exposures, 43.3% for business exposures and 39.8% for housing exposures. This can in part be attributed to the postponement of the implementation of the Code of Conduct on the management of NPLs and to the less active loan portfolio management on the part of banks, which seemed to focus mostly on short-term solutions. However, from the third quarter onwards, especially after the recapitalisation, banks appeared to step up their efforts towards more active NPL management.
The strengthening of the banking system entails addressing the high stock of non-performing loans. The effort towards long-term solutions to this major problem should benefit from the high-level operational targets for NPL resolution to be set by the Bank of Greece, in consultation with banks and the Single Supervisory Mechanism (SSM), applicable as from June 2016 and subject to monitoring on a quarterly basis. The requirement on banks to achieve these targets, coupled with the newly enacted legal and institutional framework, concerning, among other things, the establishment of a secondary market for NPLs, the speeding-up of judicial proceedings and the streamlining of the real estate collateral liquidation process, is expected to contribute to a gradual decline in the NPL ratio.
National reforms and support by the international organisations
EBRD Strategy for Greece, June 2016
The current level of NPLs is unsustainable and is a key impediment to credit growth. Preserving capital and addressing NPL problems have absorbed banks’ management capacity and time to date, and have prevented banks from considering new business opportunities. Banks now face continued implementation of their restructuring targets as well as management of their NPLs. Progress on these is expected to increase confidence in the banking system and support the banks’ capacity to rebuild their depositor base and restart lending activity.
EBRD’s objective is to support market mechanisms allowing banks to resolve NPLs. Planned activities specific to NPLs include:
Investments in NPL servicing and/or workout and restructuring platforms, which will enable banks to concentrate on new lending, as well as potentially participating in significant individual restructurings alongside local banks and specialised funds.
Offer support to the authorities for the implementation of legislation to establish a regulated profession of insolvency administrators. A first diagnostic review has been completed, with a view to providing more intensive support in 2016.
Bank of Greece, Address by Bank of Greece Deputy Governor Theodore Mitrakos at the workshop co-organised by the Bank of Greece and EBRD on “Distressed loans in the Greek banking system: restructuring portfolios, reviving enterprises”, March 2016
The Bank of Greece has taken a series of initiatives to promote more rigorous and efficient management of non-performing exposures. It has also underpinned government efforts towards shaping and implementing a national NPL strategy. In this regard, some of these Bank of Greece initiatives are:
The issuance of the Executive Committee Act 42/2014 on the supervisory framework regarding the NPE management by commercial and cooperative banks.
The activation of the Code of Conduct, which provides guidelines regarding the interaction of credit and other financial institutions with borrowers in arrears.
The conduct of several on-site inspections to monitor banks’ progress in implementing the supervisory framework.
The conduct, with the support of an external consultant, of a study on NPL segmentation and the preparedness and capacity of banks to deal with each NPL segment in a rigorous manner.
The issuance of the Executive Committee Act 82/2016 (under publication) regarding the framework for the licensing and operation of NPL servicing and acquiring firms.
The Bank of Greece, in cooperation with the ECB Banking Supervision and the commercial and cooperative banks, is in the process of agreeing a set of operational targets for NPEs. Meanwhile, the Bank of Greece is setting up a Coordination Office to support the monitoring of the implementation of the national NPL strategy.
European Commission, Report on Greece’s compliance with the second set of milestones of December 2015
Secondary legislation has been adopted concerning the protection of primary residences in the household insolvency law, including providing public sector support to the most vulnerable households. Primary legislation has been adopted to allow the servicing and transfers of non-performing loans to non-bank entities, and several key steps under the NPL strategy have been delivered. Finally, action has been taken to strengthen the governance of the Hellenic Financial Stability Fund (HFSF) and of the banking system.
Progress with the Structural Financial Benchmarks
* (follow up needed as of date of document, 21 December 2015)
EBRD, Banks and international investors convene at Bank of Greece to take stock of framework for NPL resolution, March 10, 2016
About 200 representatives of the Greek financial industry, foreign investors and advisors today met with the Bank of Greece to take stock of the evolution of the supervisory and institutional framework regarding non-performing loans (NPL) resolution.
The conference addressed three key areas:
Solutions for borrowers with exposures to multiple banks.
Conditions for the development of a secondary NPL servicing and sales market.
The bank’s internal workout of the large number of delinquent SME’s.
For more information on the event and its outcomes, please click on the links below.