The BoG warns of the risk of bad debts
Of the 21 billion euros in loans subject to a moratorium due to the pandemic, more than 80% had previously been performing, according to the Bank of Greece’s credit stability report released on Thursday.
These loans represent 15% of the managed portfolio of Greek banks (12% of their overall portfolio) and given that these loans have a relatively low provision coverage for credit risk (around 3%), the prospect of their deterioration would endanger the already fragile capital adequacy of the local credit system, the report warns.
He added that after a sudden 10% contraction of the economy in 2020, an increase in non-performing loans seems inevitable, and the amount of new non-performing bad credit loans that the pandemic is likely to leave behind will be between 8 and 10. Billions of Euro’s.
This amount is expected to further increase the already huge stock of NPL available to Greek banks which, after the completion of the securitizations programmed under the current State Guarantee Mechanism (Hercules), will represent 25% of their portfolio. In contrast, the average bad debt rate in the euro area stands at 2.9%.
BoG data shows frozen loans are 60% business credit and 40% personal loans. For most loans, the moratorium was due to expire in late 2020 or early 2021.
“Banks must recognize the increase in credit risk in their financial reports and secure the capital reserves necessary to be able to cope with the prospect of a significant increase in non-performing loans,” said the central bank, as did 34% of loans for which repayments have been suspended. for now are characterized as having increased credit risk.
Indeed, a significant portion of lending on ice concerns very small, small and medium-sized businesses that were affected by the pandemic at a time when they were just starting to recover from the previous crisis, but whose fundamentals were still weak.
Therefore, the Bank of Greece is sticking to its proposal for an asset management company to tackle the problem of deferred tax assets.