By Leonidas Stergiou
Loans that have been regulated in the last year and a half, due to a reduction in disposable income, are showing a significant deterioration. The deterioration was felt in the first quarter of 2022, according to executives of loan management companies.
The so-called re-default rate, which shows the percentage of loans that are overdue again, after 18 months from their settlement, is the most characteristic indicator. For loans that were regulated and the 18-month period expired at the end of 2021, the re-default rate was around 25%. That is, one in four loans turned red again within 18 months of being settled.
This percentage, for loans that closed 18 months after the regulation at the end of March 2022, increased to 30% (ie about one in three), while today, in some categories it has reached 40%.
Both banks and management companies believe that the recently announced government support measures to address the energy crisis will reverse the deterioration in loan servicing in the near future.
The comparison of the last 18 months, in relation to the previous 15 months, results in a deterioration in all categories of loans. The following categories are indicative:
* In mortgages, the re-default rate was around 25%, compared to 34% today.
* In consumer loans, the same percentage increased from 35% to 39%.
* In small business loans, from 32% to 37%.
Where do red loans grow?
According to the report of the European Banking Authority (EBA) for the fourth quarter of 2021, the percentage of non-performing exposures in the tourism sector increased from 13.6% in September to 14.1% in December. It is a sector that has been severely tested by the pandemic, supported by measures, while the war in Ukraine may limit the upward trends expected in 2022. Also, the red loan index increased by 1 percentage point (from 6.5 % to 7.4%, in the same period) in the administrative and support services sector.
The critical 18 months
The 18 months and two years of monitoring the progress of the regulated loans result from the supervisory rules. When a red loan is set up, in order to be considered serviced (green) it must be serviced normally for a period of 18 months and up to 2 years. In this transitional period (from red to green), these (forebone) loans are considered high risk. After 2 years, the loans are considered green again and can be repaid to the banks. This variation is related to the price at which they return to the banks, the income of the managers and the amount of the provisions. The lower the risk, the higher the revenue for managers and the lower the forecast for banks. In the last 2.5 years, it is estimated that about 4 billion euros of red loans have been repaid and returned to the banks by the management companies.
Pay attention to the calculations
The above percentages are averages per category, as there is a large variation from portfolio to portfolio, between loans of 100 billion euros that have been securitized and are managed by servicers. And the average price for the whole is much lower, as it is weighted on the basis of balances and per “batch” of arrangements that ends in green or red loans in 18-24 months.The default rate in the Greek market is estimated at around 1.5% and is almost three times that of the Eurozone.
Thus, the fact that one in three loans that have been settled becomes red again does not mean that one third of the 100 billion, ie 30 billion, become red again. These percentages are related to the “lots” of arrangements that are each monitored for 18 months to 2 years in order to be considered green again, so the amounts that turn red again are much smaller. banks’ balance sheets, where in the first quarter there was no deterioration, according to banks.
The Bank of Greece identifies approximately 9 billion euros in loans, which may be serviced, but are supported by some measures (government or bank) that are a potential source of red loans due to the crisis. Banks, according to their calculations, reduction of borrowers’ disposable income by 20% will result in red loans of 400-600 million euros.
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