Greek banks exceeded targets in reducing NPEs in 2017, Bank of Greece reports

Greek banks exceeded their targets in reducing the stock of Non-Performing Exposures (NPEs) in 2017, with NPEs decreasing by 4.8 pct and 10.0 pct compared to end-September 2017 and end-December 2016, respectively, reaching 95.7 billion euros or 43.1 pct of total exposures, the Bank of Greece said on Thursday.

In a Report on Operational Targets for Non-Performing Exposures, the central bank said that the reduction of NPEs over the past quarter was the highest quarterly reduction since the beginning of the crisis. Compared to March 2016, when the stock of NPEs reached a peak, the reduction is 12 pct or 13 billion euros. The reduction of NPEs over the past quarter was driven by write-offs which amounted to 2.1 billion euros and sales which amounted to 1.8 billion euros. Total write-offs and sales for the whole year reached 6.5 billion and 3.6 billion respectively.

In addition and contrary to the trend observed in 2017, the quarterly cure rate improved at 1.8 pct and exceeded the default rate that showed a decelerating trend at 1.7 pct. The performance in collections and liquidations is also slightly better compared to the previous quarter. Better performance is noted in the consumer and business loan portfolios, where the quarterly reduction was 14.8 pct and 4.4 pct respectively. The performance in the mortgage book was subdued, as banks recorded a quarterly reduction of only 0.6 pct. The overall reduction achieved in 2017 in the business portfolio reached 12.3 pct and a sizeable 19.7 pct in the consumer portfolio, whereas, in the mortgage book an increase of NPEs by 0.4 pct was noted. The percentage of NPE obligors that have applied for legal protection remains significant. On aggregate 13.9 pct of NPE obligors have applied for legal protection, while the highest level of protection is observed in the mortgage portfolio, where the percentage exceeds 30 pct.

The NPE ratio still remains high across most asset classes. For end-December 2017, the NPE ratio is 43.4 pct for residential, 49.3 pct for consumer and 41.8 pct for the business portfolio. For the business portfolio, specifically, the highest NPE ratio is noted in the Small Business and Professionals (SBPs) segment (NPE ratio at 65.4 pct) and the Small and Medium-Sized Enterprises (SMEs) segment (NPE ratio at 57.0 pct).

Provisions coverage at system level was decreased marginally at 47.4 pct in December 2017 from 48.0 pct in September 2017, mainly due to the high quarterly write-offs and sales of loans, which were almost fully covered in their majority.

Banks are now targeting a 37 pct reduction of their NPEs within the above mentioned period (June 2017 – 2019), reaching 64 billion euros. The timing of the NPE reduction has not changed and the largest part will be back loaded and will take effect in 2018 and 2019. More specifically, banks are now targeting an additional amount of 4.7 billion euros, thus the total amount of loan sales for the period June 2017 – 2019 will reach 11.6 billion.