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Why does the Bank of Greece see new red loans

By Leonidas Stergiou

The Bank of Greece rang the bell again yesterday for indications of the creation of new red loans and increase of the regulations, noting that this fact does not allow for complacency and the central bank is closely following the developments.

The new warning came yesterday from the Deputy Governor of the Bank of Greece, Christina Papakonstantinou, speaking at the 4th NPL Summit entitled “The Future of the Greek NPL Market. and the European Banking Authority (EBA), which spotted an increase in red loans in the tourism and services sectors, as revealed by the newspaper Capital on Saturday, April 9. According to BoG sources, loans of about 9 billion euros, including and serviced, are a potential source of new red loans as they are still indirectly or directly supported by pandemic measures.At the same time, as published by Capital.gr, the re-default rate on regulated loans has increased from 20-25% to 40% in the first quarter.

According to Ms. Papakonstantinou, the emergence of new non-performing loans can not be ruled out, as a result of the final withdrawal within 2022 of measures to support borrowers to protect against the pandemic. In addition, Russia’s invasion of Ukraine is an additional factor of uncertainty about the future of non-performing loans (NPLs) as the global economy faces inflationary pressures, mainly due to rising energy costs. He pointed out, however, that inflationary pressures on the Greek economy were relatively mild in 2021 and lower than those facing other European economies, while, for now, GDP forecasts can be described as encouraging.

“We are therefore expected to see the real impact of prices and, consequently, the reduction of disposable household income and the increase in business operating costs, on the quality of banks’ loan portfolios. It is becoming clear that a new wave of NPLs may be created. “Especially if the geopolitical crisis persists for a long time or escalates further,” she said in her speech, adding that “this impact can not be accurately estimated, but it is a valid source of concern.”

According to the BoG, in the light of the above challenges that have emerged, the rapid and complete recording of new NPLs in the balance sheets of banks is an immediate priority for the consolidation and strengthening of the resilience of the banking sector. At the same time, the efforts to de-escalate the existing stock should be intensified. More specifically, the application of the procedures provided for the bankruptcy and acquittal of debtors as well as the utilization of the basic tools at an early / pre-bankruptcy stage are deemed necessary. These tools include:

* electronic debtor notification mechanisms and consulting services from special centers and bodies,
* out – of – court settlement and
* pre-bankruptcy consolidation process.

The utilization of the new framework is expected to contribute both to the prevention of over-indebtedness and to the creation of debts that are difficult to sustain, but also to maintaining the viability of companies, whose insolvency can be avoided if they are restructured, according to Ms. Papakonstantinou.

It is self-evident that, in case the preventive restructuring of debts is not achieved, there is the possibility of applying the bankruptcy procedure, through which the liquidation of the bankruptcy property is accelerated. It is worth noting another point, which is the decoupling of the bankruptcy capacity from the commercial capacity, giving the possibility to natural persons who do not have the capacity of the trader to go bankrupt. Also, an important element is the electronic conduct of auctions using the e-auction platform.

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Source: Capital

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