Reducing NPLs an urgent priority, says Bank of Greece

Non-performing loans are expected to grow in coming months making their reduction an urgent priority, the Bank of Greece said in a report.

The central bank, in its Financial Stability Report, said that the stock of NPLs fell to 60.9 billion euros at the end of March 2020, from 68.5 billion at the end of December 31, or 37.3 pct of total loans by credit institutions in the country. However, the Bank of Greece noted that with uncertainty over a further rise, limited capability because of low profitability for the creation of capital, an expected deterioration of the deferred tax claim as a percentage of supervisory equity capital, but mostly the urgent need to fund the real economy, it is clear that additional action is necessary by banks and the Greek state.

The Bank of Greece said that NPLs could fall from 37.3 pct to 25 pct helped by existing tools (loan selling, securitization, Hercules), still the highest in the EU and of the SSM (2.7 pct and 3.2 pct, respectively in December). It added that further actions were needed to reduce the existing stock of NPLs and noted that it was examining a specific proposal to implement an asset management company (bad bank). The central bank also stressed that at the same time a reform of the private debt restructuring framework was necessary.