How many loans are expected to blush after the pandemic

By Leonidas Stergiou

The European Central Bank, at every opportunity, reiterates through the speeches of its officials and analyzes that the effects of the pandemic have not been reflected in the economy. In recent weeks, executives have added two more uncertainties related to the resurgence of the pandemic and the inflation that could threaten recovery if it stays for a long time and causes interest rates to rise.

According to the ECB, the reduction in red loans and the limited creation of new arrears are due to the monetary and fiscal measures taken and what is still in force. For this reason he insists on more provisions for risks from the banks and for the protection of their capital. The main group of loans under surveillance are all those found in installment suspensions (moratoriums), installment subsidies and other protection schemes. The so-called forbones, ie red loans that were regulated during the crisis, are also included in the same category.

Moreover, the Bank of Greece has issued the same warning, showing the loans of the moratoriums and the other regulations, predicting, based on the models it uses, that the red loans of the pandemic will reach between 8 and 10 billion euros. The calm that prevails today is a pleasant development, which, however, is due to the action of the support measures and the more sustainable loan arrangements that the servicers have advanced with the securitized loans.

The data of the Bank of Greece, which are currently confirmed by the management companies, show that the redefault rate, ie the regulated loans that turn red again, is between 20% and 30%. In particular, 20% of regulated loans show arrears after three months and 30% after 12 months. According to estimates by executives of loan management companies, these percentages appear slightly reduced, at this stage, as they proceed to longer-term solutions, ie debt extension and debt reduction. This solution now applies to over 7 out of 10 loans. From the behavior so far, the loans that are regulated and with a haircut show lower rates of default after the regulation.

High-risk loans, ie those classified in the Stage 3 category in the banks’ balance sheets, exceed 30 billion euros. It is noted that, due to the securitizations, these loans are now in the management companies.

In Greece, then, the pools of potentially new red loans are as follows:

First, 563,823 loans (housing, consumer and business), totaling 32.02 billion euros that were regulated from July 2019 to the end of September 2021, according to data from the Ministry of Finance.

Second, 408,682 loans totaling € 28.78 billion that were included in moratoria, ie a nine-month installment suspension, from mid-March 2020 to the end of September 2021.

Third, 75,632 loans totaling € 2.5 billion that were included in the Bridge I loan subsidy program.

Fourth, 19,048 business loans, totaling 1.5 billion euros, that were included in the Bridge II loan subsidy program, according to the data of October 31, 2021

Fifth, about 5 billion who are under some protection or guarantee regime, until the end of June (first half of 2021), according to the EBA. Among them are 2,904 loans (until September 2021) that were subsidized, according to the new bankruptcy law for the protection of the first home, but these through the Katselis law (520 companies, 1,535 self-employed settled debts, 241 farmers with debts to banks, Public and Agricultural Bank – PQH).

All of this, which in some cases overlaps (for example, a loan to join the Bridge 1 or 2 program would have to be up-to-date or regulated, or some after the moratoriums joined the Bridge, etc.), creates a potential pool of red loans that will appear with the withdrawal of the support measures and up to one year after their last regulation. Even if we assume that the historical default ratios of 25-30% are reduced to 20-25%, then the red loans of the pandemic are estimated at around 7 to 9.6 billion euros, ie exactly the size of the BoG forecast (8- EUR 10 billion).