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June 29, 2022

Greece’s Piraeus and NBG to set up ‘bad banks’ as bad loans soar

Greece’s biggest lenders, National Bank of Greece and Piraeus plan to put their troubled loans into separate “bad banks” in order to restore consumers’ confidence in the rest of their business, the banks’ executives told Reuters, ekathimerini.com reports. National Bank of Greece (NBG) deputy chief executive Petros Christodoulou said he was also talking to private investors about a joint venture that would involve them taking on a minority stake in some small and mid-sized business loans.
Bad banks have been set up by several European lenders in order to improve management of unpaid loans – often selling them on to funds specializing in distressed investments – and thus show the relative health of the rest of their business. The UK government is currently considering whether to introduce this kind of split at Royal Bank of Scotland, still fragile despite being bailed out when the financial crisis brought it to the brink of failure. Unpaid loans are a major headache for banks in Greece, where the economy has shrunk 25 per cent over six consecutive years of recession. The banks are still recovering from EUR 27 bln of losses brought about by the country’s unprecedented sovereign debt restructuring in 2010.
By the end of June, bad loans constituted 29 per cent of Greece’s four largest banks’ combined 260 billion-euros loan books, more than three times the 7.15 percent average the International Monetary Fund recorded for the eurozone in 2012. Christodoulou said NBG, which has the lowest rate of non performing loans (NPLs) at 24.4 per cent of its total book, was looking to set up a bad bank “in the next two months” and was in the process of hiring advisers to help with the project. NBG may also use the bad bank structure to offload some of its bad loan exposure by finding an investor to take a minority stake in a subsidiary that will hold some of the loans. “We’ve signed the NDAs (non disclosure agreements), they’ve seen the portfolios and they will put a price on them,” said Christodoulou. “These are a number of financial funds that are trying to make a quick buck so we may or may not agree in the end.”
Piraeus deputy chief executive Anthimos Thomopoulos said his bank, where impairments are running at 33 percent, was looking at ways to ring-fence bad loans from healthy ones and hoped to have its new organization in place by the first quarter of 2014. “The market requires clarity” about the returns of performing and non-performing loans, he said, adding it made sense to split the bank now because “the situation is stabilizing, we’re nearing the end of the asset cycle,” a reference to the fact that interest in non-performing loans is beginning to taper off as Greece anticipates a return to economic growth in 2014.

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