Warnings and fears for new red loans

By Leonidas Stergiou

The war in Ukraine has once again brought to the table the risk of creating new red loans and bankruptcies, as had happened with the pandemic, admitted the Vice President of the European Central Bank (ECB), Luis de Guindos, noting that today things are a little different. On the one hand, the monetary and fiscal authorities, as well as the banking system, are more prepared. Banks are also more secure. On the other hand, the uncertainty of geopolitical developments, with direct effects on businesses, economies and banks, have an aggravating effect on already high inflation and energy accuracy.

Bankers

The heads of the four systemic banks were asked by international analysts about the risk of new red loans or the slowdown in the rapid decline in non-performing exposures during the presentation of the results of 2021. They all answered that there is macroeconomic environment due to inflation and geopolitical developments. However, the data until the end of 2021 and the first months of 2022 do not show any worrying signs. On the contrary, there is less red loans than expected, while their organic reduction is greater than the targets.

The same concern, noting at the same time that there are currently no indications of new red loans, was raised by executives of loan management companies and banks that monitor the quality of loan portfolios during the recent Fin Forum 2022 conference in Athens.

BoG, EBA, ECB

For their part, supervisors are more cautious. According to data from the Bank of Greece, the ECB and the European Banking Authority (EBA), in Greece there are loans of about 9 billion euros, which are serviced, but are directly or indirectly linked to some kind of government support or guarantee under the measures to address the consequences of the pandemic.

Indeed, the moratoriums (suspension of installments) and Bridges 1 and 2 expired for a total of 30 billion euros in loans, which at the peak of the pandemic, together with the loans that were in legal status, exceeded 35 billion euros.

However, there are still € 9 billion in loans that are considered vulnerable to the complete lifting of pandemic and war support measures and their consequences (inflation, energy crisis, uncertainty, growth cuts, etc.). Support measures can be some guarantees under covid, or bonuses and other facilities to individuals and companies, which absorb pressure. When all this stops, accuracy and uncertainty will have a greater impact on these loans.

This is about 6 billion euros that are in various programs of gradual installment repayment or regulated by banks and about the same amount that have been given in the form of loans and grants in the framework of pandemic measures.

The total of regulated loans, according to the BoG, amounts to 17.6 billion euros, of which 9.4 billion euros remain non-performing, while the rest have already gone to non-performing. Furthermore, the BoG points out that there is a short time from the moment of regulation until the recurrence.

Giannis Stournaras

The warning of the Greek central banker, Giannis Stournara, speaking to the Association of Insurance Companies was typical: “In the short term, the effects of this crisis work in the direction of stagnant inflation, but in the medium term lead to deflation, depending on the declining course.”

For this reason, Mr. Stournaras reiterated what the ECB is asking for, namely simultaneous assistance from fiscal policy. As he explained in his speech, monetary policy in cases of supply inflation has a high cost and is less effective than fiscal policy. For this reason, moreover, the EU and governments are seeking the right mix of budget support to stave off recession.

Luis de Guindos

As Mr de Guindos said yesterday, the risk from the macroeconomic environment is increasing. This dimension can limit or delay investment and consumption, due to reduced disposable income, increased production costs, increased raw material costs or even shortages. That is why fiscal policy assistance is needed.

However, he stressed that even in the extreme scenario of the Commission and the ECB, growth of 2% is projected in 2022 and inflation below 2% in the medium term. Forecasts may have been revised downwards, but the Eurozone remains growing even in the most extreme scenario, with no signs of stagnant inflation. However, he did not fail to stress that if the ECB finds that it continues to underestimate inflation and that the war requires more drastic solutions, then the central bank will do so because its obligation is price stability. And if this operation is called interest rate increase, he clarified that this will happen after the bond purchase programs are stopped.