Bank of Greece: Greek banks exceed targets in reducing NPEs

Greek banks exceeded targets set in reducing Non-Performing Exposures (NPEs) in the first half of 2017 with the stock of NPEs totaling 101.84 billion at the end of June, or 1.6 billion lower than the targeted amount, the Bank of Greece said on Thursday.

However, for the second consecutive period banks missed the target for the stock of NPLs, which stand at 72.8 billion or approximately 0.4 billion higher than the targeted amount.

The stock of Non-Performing Exposures (NPEs) decreased by 2.0 pct and 3.2 pct at the end of June compared to the end of March 2017 and the end of December 2016, respectively, and reached 102.9 billion euros or 44.9 pct of total exposures, the Bank of Greece said in its Report on Operational Targets for Non-Performing Exposures.

Since March 2016, when the stock of NPEs reached the peak, the reduction is 5.2 pct or 5.7 billion euros.

The quarterly default rate remains above 2 pct and still exceeds the cure rate, constituting write-offs the main tool for NPE reduction. Quarterly write-offs amounted to 1.9 billion euros reaching 3.3 billion euros for the first semester of 2017. The highest quarterly NPE inflows were reported in the mortgage portfolio, which were counterbalanced by the significant cure rates reported in the same portfolio.

Following the pattern of previous quarters, the outflow of NPEs coming from collections, liquidations and sales of loans was rather limited. As previously mentioned, the key driver for the reduction in the stock of NPEs over the past quarter has been the loan write-offs, especially in the business and consumer portfolios.

Additionally, a significant percentage of NPE obligors have applied for legal protection. In terms of total loans’ portfolios 15 pct of NPE obligors have applied for legal protection, while in the mortgage portfolio the percentage exceeds 30 pct.

The NPE ratio remains high across most asset classes. For end-June 2017, the NPE ratio is 42.7 pct for residential, 53.6 pct for consumer and 44.4 pct for the business portfolio. For the business portfolio in specific, the highest NPE ratio is noted in the Small Business and Professionals segment (67.8 pct NPE ratio) and the Small and Medium-Sized Enterprises (SMEs) segment (NPE ratio at 59.8 pct).

Similar to previous quarters, better performance is noted in the Large Corporate (25.0 pct NPE ratio) and Shipping (36.8 pct NPE ratio) segments.

Provisions coverage at system level is decreased further at 48.3 pct in June 2017 from 49.1 pct in March, mainly due to the high quarterly write-offs.

Early in September last year, banks submitted their operational targets for NPEs on the basis of their own macroeconomic assumptions and NPEs’ strategy. Banks have set a target for a 38 pct reduction of their NPEs within the above mentioned period, reaching 66.7 billion by the end of 2019.

According to the banks’ submissions, the largest part of the reduction will be back loaded and take effect in 2018 and 2019. The reduction will be mainly driven by curing of loans and write-offs and to a lesser extent by liquidations, collections and sales of loans. The reduction of balances will be mitigated by the inflows of new NPEs, which are expected to remain quite significant throughout 2017.

The NPEs as a percentage of total exposure will gradually decelerate and reach 33.9 pct in 2019.
The relevant NPL ratio decreases in the same period from 37% to 20%. The larger reduction in the stock and ratio of NPLs compared to the NPEs is mostly related to the minimum probation period of one year for the curing of non-performing forborne loans, as per EBA guidelines.