Moody’s: Greek banks meet non-performing exposure targets, a credit positive

The Bank of Greece published a report showing that local banks including Piraeus Bank (Caa3 stable, caa2), National Bank (Caa3 positive, caa2), Alpha Bank (Caa3 positive, caa2), Eurobank (Caa3 stable, caa2) and Attica Bank (Caa3 stable, caa3), which comprise around 97 pct of the banking system, have met their third-quarter 2017 targets for nonperforming exposures (NPEs). This is credit positive for the banks because it gradually alleviates the sizable NPE burden that weighs on their balance sheets, Moody’s said on Monday.

NPEs in the system were around 99.1 billion euros as of September 2017, or around 56 pct of GDP, outperforming banks’ 99.9 billion euro NPE target by 800 million euros. The target was more ambitious relative to the targets set in 2016, despite worse macroeconomic assumptions.

The report forecast a reduction in the balances of nonperforming loans (NPLs) of around 45 pct by the end of 2019, and a reduction in NPEs of around 35 pct over the same period. Reducing NPLs, and ultimately NPEs, is Greek banks’ most significant challenge, and will require sustainable economic growth over the next two years. The reduction in problem loans is necessary to improve Greek banks’ financial soundness and to free up capital to support productive economic sectors.

The Bank of Greece, in cooperation with the European Central Bank’s banking supervision arm, has requested that banks set targets for both NPLs and NPEs. The regulators are closely monitoring these targets on a quarterly basis, and encourage banks to dedicate sufficient resources to tackle what is one of the economy’s most difficult challenges. Accordingly, banks have reduced their stock of NPEs by 7.6 pct since stocks peaked in March 2016, over-performing their initial NPE target set in 2016 by around 2.9 billion euros and their NPL target by 300 million euros.