OVERVIEW OF THE GREEK FINANCIAL SYSTEM - JANUARY 2017
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OVERVIEW OF THE GREEK
FINANCIAL SYSTEM
JANUARY
2017 BANK OF GREECE
EUROSYSTEMOVERVIEW OF THE GREEK
FINANCIAL SYSTEM
JANUARY
2017 BANK OF GREECE
EUROSYSTEMBANK OF GREECE 21 E. Venizelos Avenue GR 102 50 Athens www.bankofgreece.gr Financial Stability Department Tel. +30 210 320 5103 Fax +30 210 320 5419 ISSN 2529-0681
PROLOGUE The analysis that follows in the next pages is the second release of the Overview of the Greek Financial System, which has been scheduled as a bi-annual publication of the Bank of Greece. Among the Bank of Greece staff that contributed to this publication, special mention should be made of Elias Veloudos, Eleftheria Georgoulea, Konstantinos Zavandis, Alexandros Kaliontzoglou, Antigoni Kallergi, Konstantinos Kanellopoulos, Evaggelia Kardara, Eleni Loukidou, Alexandros Brachos, Vasiliki Nydrioti, Sofia Savvidou, Vasilios Siakoulis, Dimitrios Sideris, Nikolaos Stavrianou, Stavros Stavritis and Ioannis Tsikripis. Moreover, the Bank’s Administration, the Economic Analysis and Research Department, the Financial Operations Department and the Banking Supervision Department provided valuable comments and corrections. We want to extend our thanks to the Networks and Communication Support Section and the Strategic Planning & Information Systems Evaluation Section of the Information Systems De- partment, the Communication Section of the Human Resources and Organisation Department and the Publications and Translation Section of the Economic Analysis and Research Depart- ment for their impeccable cooperation. Without their assistance this publication would not have been possible. The responsibility for any errors and omissions rests exclusively with the Finan- cial Stability Department.
CONTENTS
PROLOGUE 6 3. Conclusions 39
I. SUMMARY 8 V. ELECTRONIC PAYMENT
INSTRUMENTS 41
II. MACROECONOMIC AND FISCAL
DEVELOPMENTS 11 1. PAYMENT CARDS 41
1.1 Number of payment cards 41
1. Economic activity: Developments and
prospects 11 1.2 Transactions with payment
cards 41
2. Fiscal developments 13
1.3 Card fraud 43
III. THE BANKING SECTOR: RISKS 2. CREDIT TRANSFERS 44
AND RESILIENCE 16
2.1 Credit transfer transactions 44
1. Structure of assets and liabilities 16 2.2 Credit transfer fraud 44
2. Banking risks 17 3. DIRECT DEBITS 45
2.1 Credit risk 17 3.1 Direct debit transactions 45
2.2 Liquidity risk 28 3.2 Direct debit fraud 45
2.3 Market risk 30 4. DEVELOPMENTS IN THE LEGAL
2.4 The banking system’s FRAMEWORK on PAYMENT
exposure to Greek government SERVICES 46
bonds (GGB) 32
SPECIAL FEATURE I 47
2.5 Risks and outlook of Greek
banks’ activities in Southeastern THE IMPACT OF CAPITAL
Europe (SEE) 33 CONTROLS ON THE STABILITY OF
2.6 Resilience 34 THE FINANCIAL SYSTEM AND THE
ECONOMY 47
IV. OPERATIONAL TARGETS FOR
NON-PERFOMRING EXPOSURES AND SPECIAL FEATURE ΙΙ 50
CAPITAL ADEQUACY 37
TRANSFERS OF NON-PERFORMING
1. Operational targets 37 EXPOSURES AND THE CAPITAL
2. Results of the sensitivity analysis 38 ADEQUACY OF CREDIT
INSTITUTIONS 50I. S U MM A R Y
During 2016, the financial system’s principal cussion about public debt sustainability.
risks seem to have stabilised, while the medi- Measures to ensure that servicing needs will
um-term prospects will mainly depend on remain at a sustainable level are expected to
creating an environment favouring economic further boost market confidence regarding the
growth. However, there are still significant growth prospects of the Greek economy and
challenges, both in the domestic front, due to help attract foreign investment, fueling eco-
potential delays in the completion of the sec- nomic growth.
ond review of the Third Economic Adjust- Gross Domestic Product (GDP) during the
ment Programme for Greece, and structural nine-month period January - September 2016
factors (e.g. high stock of non-performing grew, due to the recovery in consumption and
exposures (NPEs), low level of outstanding an increase in gross investment, while net
bank deposits), and abroad due to political imports exerted a negative drag. According to
uncertainty in developed countries and estimates of the Bank of Greece, economic
emerging economies’ risks. These challenges activity increased slightly in 2016, due to the
could halt the economic upturn and reignite recovery observed in the second half of the
uncertainty, also affecting the financial sys- year. For 2017, 2018 and 2019 growth rates
tem. of 2.5%, 3% and 3% are forecast respectively.
The reference period of this review is the first Credit risk remains the most important source
half of 2016, but some key figures on eco- of instability for the domestic financial sys-
nomic and fiscal developments, banking risks tem. The high stock of NPEs both hampers
and in particular credit risk, liquidity risk and credit supply to the real economy and weighs
the resilience of the banking system as well as on banks’ profitability outlook. However, in
capital controls are updated with end Septem- 2016 the stock of NPEs seems to have stabi-
ber data. Illustration in certain charts is ex- lised, as the flows of new NPEs have de-
tended until 30.09.2016, while for some mar- clined, leading to reduced provisioning by
ket risk charts data cover the period until No- credit institutions.
vember 2016.
To address credit risk, both the Bank of
International and domestic macroeconomic Greece and credit institutions have focused on
developments and market data the management of NPEs. Specifically, the
The successful completion of the first review Bank of Greece strengthened the supervisory
of the Third Economic Adjustment Pro- and regulatory framework with an aim to en-
gramme for Greece and the adoption of im- hance transparency and information provided
portant institutional reforms, including the by credit institutions to improve the efficiency
establishment of a framework for the effective of NPE management, and to separate cooper-
management of non-performing exposures ating from non-cooperating borrowers, under
(NPE), assist the gradual recovery of financ- the revised Code of Conduct. In addition, the
ing conditions in the real economy. Moreover, Bank of Greece together with the Single Su-
the timely completion of the second review pervisory Mechanism (SSM), in cooperation
will pave the way to the beginning of the dis- with banks, have set quarterly Operational
Overview of the
Greek financial system
January 2017 8Targets as milestones on a road map to reduce last fifteen months, developments in the bank-
the stock of NPEs by 2019. As agreed, the ing sector, most importantly the recapitalisa-
total stock of NPEs will have to be reduced tion of Greek banks in December 2015 and
by around 40% or €38 billion in absolute the reinstatement of the “waiver” in the
terms, by the end of 2019. monetary policy operations of the Eurosys-
Moreover, a flexible framework for out-of- tem, coupled with the stabilisation of the
court debt settlement is being developed, with economy, allowed a gradual relaxation of the
a view to speedy and transparent settlement of initial restrictions. However, the maintenance
debts to both the private and the public sector; of capital controls negatively affects macroe-
progress is also being made towards creating conomic aggregates, while their elimination
a secondary market for non-performing loans crucially hinges on economic developments
(NPLs). The Bank of Greece assesses the ap- and the restoration of depositors’ confidence.
plications of potential credit servicing and At the same time, capital controls have had
acquiring firms and will only authorise appli- positive side-effects, with households and
cants that meet the suitability criteria it has enterprises increasingly turning to e-
set. Already one company has received the payments. However, their widespread use
relevant license. Furthermore, active NPL entails heightened fraud risk, highlighting the
management tools (e.g. securitisation) are need for payment service providers to
also being considered and, where necessary, strengthen security mechanisms in e-
changes will be introduced to the supervisory transactions, both deterring fraud and reduc-
or regulatory framework. ing its occurrence.
The Greek banking system’s liquidity im- Greek banks’ profitability outlook and quality
proved during the reviewed period, as reflect- of portfolio in their SE Europe (SEE) busi-
ed in the continued reduction in emergency ness appear to be positive, in light of the im-
liquidity assistance (ELA) provided to Greek proved growth prospects of the countries in
banks. After the reinstatement of the “waiv- the region and Cyprus’s successful exit from
er”, Greek government bonds become eligible its Economic Adjustment Programme. Fur-
as collateral for the monetary policy opera- thermore, these developments facilitate the
tions of the Eurosystem. Liquidity improve- implementation of the Greek banks’ restruc-
ments were also enabled by the gradual turing plans that have been approved by the
strengthening of drawing of liquidity through European Commission, regarding their inter-
interbank funding in repos, with the use of national activities.
additional collateral. Further developments in In conclusion, risks to the Greek financial
liquidity hinge on the timely and successful system, albeit still considerable, seem to have
completion of the second review and the stabilised, while the medium-term outlook
reaching of a solution for public debt sustain- appears to be positive, subject to the macroe-
ability. conomic environment improving, the second
The introduction of capital controls contribut- review of “The Economic Adjustment Pro-
ed to the improvement of the banking sys- gramme for Greece” being completed, NPEs
tem’s liquidity by curbing the massive deposit being resolved and depositors’ confidence
outflows and capital flight abroad. During the being restored, which would lead to fulfil-
Overview of the
Greek financial system
January 2017 9ment of the criteria of inclusion of Greek
government bonds in the ECB’s quantitative
easing programme.
Overview of the
Greek financial system
January 2017 10I I . M A C RO E C O N O M I C AN D FI S CA L
D E VE L O PME NT S
of Greek bonds used as collateral in Eurosys-
1. ECONOMIC ACTIVITY:
DEVELOPMENTS AND tem monetary policy operations has also
PROSPECTS played a pivotal role. At the same time, tack-
GDP growth over January-September 2016 ling some pending issues from past reviews –
reflects the recovery of private consumption such as finalising the privatisation of regional
and the increase in total investment, while net airports and the development of the old air-
exports had a negative impact on activity (see port property in Hellinikon – has helped to
Table II.1). The successful completion of the gradually restore confidence.
first review under the Third Economic Ad- Trends observed in recent years, which indi-
justment Programme for Greece and the im- cate that the Greek economy is moving to-
plementation of significant structural reforms, wards a new, more export-oriented growth
including the establishment of a framework model, which is based on the sectors of trada-
for an effective management of non- ble goods and services, support the expecta-
Performing Exposures (NPEs), have under- tions for a rebound in activity. The shift into a
pinned the gradual normalisation of financing more export-oriented model is also evidenced
conditions for the real economy. In this direc- by the growing share of exports in GDP,
tion, it is estimated that the decision of the which increased from 19% in 2009 to 31.9%
Governing Council of the ECB in June 2016 in 2015 (in nominal terms). It should also be
to reinstate the waiver affecting the eligibility noted that the increase in exports of goods
Table II.1 GDP and its main components (2014 - Q3 2016)
Percentage changes (constant market prices of 2010)
2014 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Private Consumption 0.6 -0.3 1.3 1.9 -4.1 -0.4 -0.8 -1.2 5.1
Public Consumption -1.2 0.0
-0.1 -3.1 0.8 2.5 -2.1 -0.9 -0.6
Gross fixed capital formation -4.6 -0.1 4.9 -13.0 -4.4 12.2 -9.5 17.9 12.6
Dwellings -53.1 -26.0 -33.4 -11.7 -36.4 -18.5 -17.0 -23.3 -3.7
Others constructions -3.9 4.2 -12.6 -4.8 1.5 40.9 13.6 19.1 20.1
Equipment 21.4 -2.8 51.8 -18.9 -12.4 -17.0 -23.2 40.3 17.0
Domestic demand -0.4 -0.2 1.4 -0.9 -3.1 1.6 -2.1 0.7 4.7
Exports of Goods & Services 7.7 3.1 12.5 10.3 -7.0 -2.2 -10.5 -3.2 10.2
Exports of Goods 4.1 8.6 10.1 7.4 7.0 10.0 2.4 20.5 9.5
Exports of Services 12.2 -2.7 15.0 14.8 -21.8 -14.9 -22.8 -24.6 10.5
Imports of Goods & Services 7.6 0.3 15.1 4.0 -14.1 -2.7 -8.7 4.9 12.0
Imports of Goods 8.1 3.4 14.7 4.1 -7.7 3.5 -2.1 14.7 7.5
Imports of Services 5.6 -11.7 16.8 3.8 -39.2 -26.7 -31.6 -29.9 38.1
Real GDP at market prices 0.4 -0.3 0.1 0.5 -2.2 0.4 -0.8 -0.5 1.8
Sources: Hellenic Statistical Authority and Bank of Greece.
Overview of the
Greek financial system
January 2017 11exceeded the increase in external demand in pinned by the improvement in non-residential
2014-2015, which indicates that the export private investment. It is to be assumed that
market shares of Greek goods in the global the gradual easing of capital controls and re-
economy have grown. stored confidence will have a favourable im-
According to Bank of Greece estimates, eco- pact on domestic lending to the private sector.
nomic activity is expected to grow marginally The projected decline in exports for 2016 re-
in 2016, on the back of the recovery that was flects primarily a drop in shipping receipts, as
observed in the second half of the year. GDP a result of the capital controls, and secondari-
is expected to continue to grow by 2.5%, 3% ly a decrease in tourism receipts. Neverthe-
and 3%, in 2017, 2018 and 2019, respectively less, exports of goods are expected to contin-
(see Table II.2) ue to follow the upward trend of 2014-2015,
in line with developments in external demand
In 2016, private consumption is estimated to
for Greek goods. Imports of goods and ser-
decline slightly, whereas investment is ex-
vices are estimated to decrease, in line with
pected to grow, as the increase in business
developments in domestic demand.
investment is expected to offset the decreases
in residential and public investment. For Turning to the labour market, unemployment
2017, 2018 and 2019, economic growth is is expected to continue its downward trend
expected to be driven by the recovery in the through 2017, driven by the return of the
main components of domestic demand, i.e. economy to positive growth rates, the stabili-
consumption and investment. Private con- sation of the economic sentiment, and the im-
sumption is expected to increase, mainly as a pact of active employment policies. The
result of the increase in income (which also structural reforms that have already taken
reflects the rise in employment), and support- place in the labour market and the consistent
ed by improving credit conditions and en- implementation of the action plan on unde-
hanced confidence. clared labour are expected to support em-
ployment. Nevertheless, the persistent high
The recovery of investment will be under-
Table II.2 Macroeconomic estimates in Greece (changes over previous period)
2015 2016 2017 2018 2019
GDP ( at constant prices) -0.2 0.1 2.5 3.0 3.0
Private Consumption -0.2 -0.8 1.3 1.7 1.7
Public Consumption 0.0 1.8 1.1 0.0 1.9
Gross fixed capital formation -0.3 2.3 10.2 12.2 9.3
Exports of Goods & Services 3.4 -4.3 3.2 4.2 4.3
Imports of Goods & Services 0.3 -3.5 2.8 3.1 3.5
Inventrory Changes -1.0 0.2 0.1 0.0 0.0
HICP -1.1 0.1 1.1 1.0 1.2
HICP excluding energy 0.2 0.6 0.6 0.8 1.1
Number of persons employed 2.1 2.0 2.1 2.2 2.2
Unemployment rate (% of labour force) 24.9 23.5 22.0 20.5 19.0
Balance of payments (% of GDP) 0.1 0.5 0.7 0.3 0.2
Sources: Hellenic Statistical Authority and Bank of Greece.
Overview of the
Greek financial system
January 2017 12rate of long-term unemployment is not ex- the restoration of market confidence in the
pected to be remedied automatically, even if a Greek economy.
new virtuous circle of the economy is set in The adverse economic environment was re-
motion, thus calling for coordinated and ef- versed when an agreement was finally
fective policies. reached regarding tax and social security re-
Inflation fluctuated throughout 2016. Defla- form. This resulted in a positive review of the
tionary trends remained strong, in a context of programme implementation in May 2016,
low oil prices and weak domestic demand. which in turn had a positive effect on confi-
Renewed tax hikes in goods and services, ris- dence and the recovery prospects of the Greek
ing oil prices, as well as increasing domestic economy. The positive review was accompa-
demand are expected to push overall inflation nied by the approval of the second instalment
into positive territory from end-2016 on- amounting to €10.3 billion, of which €7.5
wards. billion were disbursed in June 2016. Out of
The risks surrounding the baseline scenario of this first tranche, €1.8 billion concerned the
the Bank of Greece are balanced. Upside risks payment of arrears and were channeled into
are associated with a more favourable than the real economy in the following months.
expected effect on business activity from the The disbursement of the second tranche of the
decrease in government arrears, with a faster instalment (€2.8 billion, of which €1.7 billion
than expected restoration of confidence and went to the payment of arrears) was partly
expectations, and with a swifter than expected associated with the implementation of prior
improvement of liquidity. Downside risks are actions, mainly in the areas of the energy sec-
related with the impact of high taxation and tor and privatisations, as well as with the
delays in the structural reform programme course of the clearance of government arrears,
and the completion of the second review. and was approved in October 2016 when such
progress was verified. In the area of privatisa-
2. FISCAL DEVELOPMENTS tions, the appointment of the board members
The first half of 2016 was marked by pro- of the newly established privatisation fund
tracted negotiations with the country’s inter- (Hellenic Corporation of Assets and Partici-
national creditors in the context of the first pations S.A.) and the transfer of entities to it,
review under the Third Economic Adjustment helped considerably in this direction. Other
Programme for Greece, which stalled its actions in the area of public finances included
completion. As was also the case in the corre- the full alignment of social security contribu-
sponding period of 2015, financing under the tions and the functioning of a new Independ-
programme froze and payment obligations ent Authority for Public Revenue.
were met through an increase in short-term The successful completion of the first review
borrowing from general government entities, of the Third Economic Adjustment Pro-
while at the same time payments to general gramme for Greece positively affected both
government suppliers were postponed, which fiscal management and the real economy. An
led to a rise in government arrears with nega- immediate gain was the enhancement of li-
tive consequences for economic activity and quidity for the government thanks to the dis-
bursement of the second instalment, which
Overview of the
Greek financial system
January 2017 13facilitated government cash management. rogroup announcements on 9 and 24 May
Furthermore, the provision of liquidity to the 20161, is expected to further boost market
real economy through the decrease of accu- confidence in the growth prospects of the
mulated arrears to general government sup- Greek economy and help to attract foreign
pliers is estimated to have supported econom- investment, thereby fostering economic
ic activity. growth. Moreover, to this end, the inclusion
Meanwhile, commitment to the reforms and of Greek bonds in the ECB’s quantitative eas-
the attainment of individual targets under the ing programme, which is conditional upon the
programme helped to improve market confi- strict adherence to the programme and the
dence and investors’ expectations with re- completion of the public debt sustainability
spect to the prospects of the Greek economy. analysis by the ECB, may have a beneficial
More specifically, the yield of the 10-year effect.
Greek government bond narrowed to 7.2% The aforementioned developments are mir-
(30.12.2016), from 9.1% in early May rored in ordinary budget tax revenue, which
(2.5.2016). fell short of their target in the first four
The completion of the first review was imme- months of the year but has improved visibly
diately followed by the second review, with a ever since. According to data available for the
view to being completed as soon as possible. January-November 2016 period, ordinary
Prior actions mostly refer to the areas of the budget revenue increased remarkably year-
labour market, the energy sector and privati- on-year and overshot the target on the back of
sations. With regard to public finances, the better revenue performance from both direct
prior actions relate, among other things, to the and, mainly, indirect taxation. This develop-
publication of the Medium-Term Fiscal Strat- ment was supported, apart from the recent
egy (MTFS) 2017-2020, the presentation of measures, also by the wider use of electronic
medium-term actions for the timely payment transactions as a result of the capital controls
of general government suppliers, the comple- restricting cash withdrawals that were intro-
tion of changes in special wage regimes and duced in July 2015.
the enactment of a permanent framework for By way of illustration, VAT receipts followed
civil servants’ mobility. a strong upward path despite a shrinking tax
Delays in the completion of the second re- base during the two first quarters of 2016 and
view must be avoided at all costs, with a view before the main VAT rate increase to 24% in
to safeguarding the gains from the reforms June, which may also be attributed to the fa-
and fiscal efforts achieved so far and ensuring vourable impact from the increased use of
the unobstructed path of the economy towards credit and debit cards. Revenue from tax ar-
sustainable growth rates. Besides, the timely rears recorded similar high positive growth
completion of the second review will pave the rates, a development which is due, apart from
way for the initiation of talks about the sus- the new measures regarding tax arrears, also
tainability of public debt. The adoption of to the intensification of audits.
measures aimed at ensuring that public debt
servicing needs will remain at more manage- 1
See Bank of Greece, Monetary Policy Report 2015-2016,
June 2016, Special feature V.1, p. 133 [in Greek].
able levels, in the context of the relevant Eu-
Overview of the
Greek financial system
January 2017 14Given the satisfactory course of tax revenue, for the years to come, as it determines the
both on a cash basis (data covering the Janu- fiscal targets and outlines the macroeconomic
ary-November period) and on a national ac- context and the budgetary path to their
counts basis (data covering the first half), the achievement. Under the Third Economic Ad-
Bank of Greece estimates that the fiscal bal- justment Programme for Greece, the fiscal
ance in 2016 will outperform the programme targets are clearly set for the years from 2018
target. For 2017 the fiscal balance, although it onwards, and provide for the achievement of
is considered to be attainable, is subject to primary surpluses of 3.5% of GDP each year.
uncertainties, which are associated with mac- However, this target is deemed too high to be
roeconomic developments, the continuation sustainable over time. Past experience has
of the good revenue performance and the de- shown that only few countries have been able
crease of non-productive public spending. to maintain that high primary surpluses for
Such uncertainties could be addressed long periods. A lowering of the fiscal target to
through the promotion of actions involving: a primary surplus of 2.0% of GDP is a more
(a) the mandatory use of electronic transac- realistic approach to the required fiscal ad-
tions as a means of curbing tax evasion and justment, without affecting public debt sus-
improving tax compliance; (b) the intensifica- tainability prospects. This lowering, coupled
tion of tax audits; (c) the prompt implementa- with the promotion of the aforementioned
tion of an electronic registry; and (d) the more structural reforms, is likely to create the nec-
efficient functioning of the public sector. essary conditions for a gradual reduction in
The months ahead are critical for the success- taxation and a further pick-up in economic
ful completion of the second review. In the activity and investment, which in turn will
context of the implementation of all prior ac- bring the Greek economy to sustainable
tions, the enactment of the MTFS 2017-2020 growth rates.
will be a major step towards defining the ap-
propriate fiscal and, overall, economic policy
Overview of the
Greek financial system
January 2017 15I I I . T H E B AN K I N G S E C T O R: RI S K S A ND RE S I L I E N C E
53.5% as at 31 December 2015, due to the
1. STRUCTURE OF ASSETS AND
LIABILITIES above-mentioned fall in total assets; and (b)
other assets dropped as a percentage of total
The first half of 2016 saw two important
assets to 14% as at 30 June 2016, from 20.6%
changes in the banking system’s aggregates: a
as at 31 December 2015 (see Chart III.1).
reduction in other assets due to the sale of
National Bank’s subsidiary Finansbank and a The most notable development in total liabili-
decrease in borrowing from the Eurosystem. ties, which shrank by €33 billion, was a €12
Τhe total assets of Greek commercial banking billion decline in liabilities to credit institu-
groups fell by €33 billion in the first half of tions as a result of a decline in borrowing
2016 to €312 billion as at 30 June 2016, from from the Eurosystem by €20 billion (ECB
€345 billion as at 31 December 2015 (see Ta- lending: down by €6.0 billion, ELA: down by
ble III.1). This decrease was the combined €14 billion) and a €8.0 billion increase in oth-
result of (a) a €3.0 billion reduction in the net er liabilities to credit institutions. A further
outstanding amount of loans; (b) a €3.0 bil- decrease in liabilities stemmed from a €21
lion fall in bond and equity valuations; and (c) billion reduction in other liabilities due to the
a €27 billion decline in other assets due to the aforementioned sale of Finansbank. The
sale of foreign subsidiaries of Greek banks, above developments also led to changes in the
most notably National Bank’s sale of Finans- liabilities structure, namely: (a) customer de-
bank. posits, despite remaining unchanged in abso-
During the reviewed period, the most im- lute terms (€147 billion), rose to 47.2% as a
portant changes in assets structure were as percentage of total liabilities as at 30 June
follows: (a) despite declining in absolute 2016, from 42.5% as at 31 December 2015,
terms, loans increased as a percentage of total due to the fall in total liabilities; and (b) other
assets to 58.2% as at 30 June 2016, from liabilities dropped as a percentage of total
Table III.1 Structure of assets and liabilities of the Greek commercial banking groups
(amounts in EUR millions)
2015 H1 2016
Change
Assets % %
Loans 185,094 53.5 181,950 58.2 -3,144
Bonds & Equities 72,262 20.9 63,306 22.2 -2,955
Equity participations, Assets & Others 71,123 20.6 43,680 14.0 -27,443
Claims on credit institutions 7,830 2.3 8,432 2.7 602
Cash and reserves at the central bank 9,460 2.7 9,042 2.9 -418
Total 345,769 100.0 312,411 100.0 -33,358
2015 H1 2016
Change
Liability % %
Customer deposits 147,073 42.5 147,374 47.2 301
Liabilities to credit institutions 115,442 33.4 103,554 33.1 -11,889
Own funds 36,925 10.7 36,699 11.7 -226
Bank bonds 1,905 0.6 1,782 0.6 -123
Others 44,424 12.8 23,002 7.4 -21,421
Total 345,769 100.0 312,411 100.0 -33,358
Source: Bank of Greece.
Overview of the
Greek financial system
January 2017 16Chart III.1 Structure of liabilities of the Greek June 2015, as a result of a considerable €9.0
commercial banking groups
(percentage %)
billion decline year-on-year in impairment
Others charges to €1.9 billion.
Bank bonds
Own funds
The other income and expenses components
Liabilities to credit institutions
Customer deposits remained almost unchanged year-on-year.
100%
7
13
90% 1
1 12
2. BANKING RISKS
80% 11
2.1 CREDIT RISK
70%
60%
33 General review
33
50% The impairment of assets continued in 2016,
40% albeit at a slower pace than in 2015; as a re-
30% sult, credit risk continues to be the most im-
47
20% 43
portant source of instability for the financial
10%
system. This hampers the Greek banking sys-
0%
2015 H1 2016
tem’s intermediation role, i.e. its ability to
Source: Bank of Greece.
supply credit to the real economy. However,
liabilities to 7.4% as at 30 June 2016, from during the first three quarters of 2016, the
12.8% as at 31 December 2015 (see Chart stock of NPEs stabilised, and accumulated
III.2). loan-loss provisions were reduced commensu-
Chart III.2 Structure of assets of the Greek com- rately. Consequently, if this trend continues,
mercial banking groups
credit risk is not expected to increase in the
(percentage %)
Cash and reserves at the central bank near term.
Claims on credit institutions
Equity participations, Assets & Others Managing the stock of NPEs remains the
Bonds & Equities
100%
Loans most important challenge facing the banking
3 3
2 3
90%
system in the period ahead.
14
21
80% On the one hand, macroeconomic factors are
70% 22 increasingly conducive to dampening credit
21
60% demand by enterprises, including viable ones,
50% due to a rise in business risks; on the other
40% hand, structural factors (e.g. the legacy of a
30% 58
high stock of NPEs) reduce banks’ lending
54
20% capacity and profitability potential. In addi-
10% tion, households have drastically cut consum-
0% er spending amid continued uncertainty about
2015 H1 2016
Source: Bank of Greece.
their future financial condition. The reduced
scope for internal capital generation through
Finally, it should be noted that the banking
retained profits, coupled with increased fund-
system’s profitability improved in the first
ing constraints, limit banks’ ability to supply
half of 2016 year-on-year, with marginal pre-
credit to the real economy, thus contributing
tax profits of €90 million as at 30 June 2016,
to a low-growth environment.
compared with losses of €7.5 billion as at 30
Overview of the
Greek financial system
January 2017 17The low-growth environment in turn directly Chart III.3 New non-performing exposures crea-
tion
impacts on banks’ balance sheet size, as 7,000
banks reduce the supply of credit, especially
6,000
when it carries high risk, in order to protect
5,000
their capital base. This may lead to a decrease
EUR millions
in business generating high income for banks, 4,000
thus worsening their profitability prospects. 3,000
The prolonged recession in Greece has affect- 2,000
ed the quality of banks’ assets, with the ac-
1,000
cumulated stock of NPEs remaining very high
0
and the NPE ratio standing at 45.2% at end-
September 2016.
Source: Bank of Greece.
Against this background, banks have already
Further developments that could contain the
developed a framework for actively tackling
level of new NPE formation at marginal lev-
the problem of NPEs, offering a number of
els also depend on the stabilisation of the
loan restructuring solutions to their custom-
economy, which would set the evolution of
ers; at the same time, they have established
the quality of banks’ assets on a virtuous path
in-house units dedicated to the appropriate
of declining NPEs in the near future. This
management of NPEs. Banks have also rec-
would facilitate the achievement of banks’
ognised high (albeit declining) loan-loss pro-
operational targets for reducing the stock of
visions; as a result, the provisioning coverage
NPEs over the next three years.
ratio was 49.5% at end-September 2016.
Financial condition of households and en-
Greek banks continued to deleverage in the
terprises
first three quarters of 2016, albeit at a slower
pace than in 2015, as a result of loan write- Household loans accounted for 46.2% of total
offs, sales of units abroad, as well as a ration- bank credit to the private sector in September
alisation of their business, including sale of 2016, two thirds of which were housing loans.
portfolios, which will be continued in the pe- According to the Bank Lending Survey2 con-
riod 2017-2019, in keeping with banks’ ducted by the Bank of Greece on a quarterly
commitments under their restructuring plans. basis, banks’ credit standards for household
It should be recalled that deleveraging, at the loans, terms and conditions and net demand
international level, is a process implemented for housing and consumer loans remained
on the basis of a continuous assessment of almost unchanged in the third quarter of 2016
cross-border units. relative to the second quarter of 2016, in line
with expectations, and no change is expected
As a result of these actions, new NPE for-
in the fourth quarter of 2016.
mation has been gradually declining since
2015, falling in the first, second and third Household credit risk remained relatively ele-
quarters of 2016 year-on-year, when the level vated in the first three quarters of 2016, given
of new arrears was comparatively lower than
in previous periods (see Chart III.3). 2
http://www.bankofgreece.gr/Pages/en/Statistics/monetary/
BankLendingSurvey.aspx
Overview of the
Greek financial system
January 2017 18the decline in households’ disposable income ability remains weak. Risks to corporate bal-
from labour and professional activities, while ance sheets remain high.
households’ net wealth has also declined NPEs’ structure and change
year-on-year, as a result of lower equity and
As a result of the above developments, the
real estate valuations. The Athex composite
NPE ratio rose marginally during the first half
price index fell by 10.4% in the first three
of 2016 (to 45.1%, from 44.2% at end-2015),
quarters of 2016, while the year-on-year rate
mainly on account of a decrease in perform-
of change in the Index of Apartment Prices
ing exposures. Specifically, while total bank
compiled by the Bank of Greece3 remains
credit shrank by just 1.6% in the first half of
negative (2016: Q3: -1.5%, Q2: -2.6%, Q1: -
2016, total performing exposures fell faster,
4.3%), although weakening over the last three
by 3.2% in comparison with end-2015. Total
quarters. The household sector will only re-
NPEs reached €108.4 billion, out of a total of
cover once confidence in the real economy is
€240.3 billion, rising marginally by 0.4% in
consolidated, with a rise in employment and a
comparison with end-2015. A similar picture
gradual fall in the high unemployment rate,
(see Chart III.4) is presented by portfolio
coupled with improved labour market condi-
segments, with the exception of the consumer
tions, which could create prospects for an im-
loan portfolio, which shows lower rates of
provement in household income over the long
decrease in bank credit and performing expo-
term.
sures (2.2% and 0.8%, respectively).
Business loans made up 53.8% of total bank
It should be noted that in the third quarter of
lending to the domestic private sector in Sep-
2016, total NPEs reached €107.6 billion and
tember 2016.
total exposures amounted to €240.3 billion,
According to the Bank Lending Survey, both
with the NPE ratio at 45.2%.
credit standards, terms and conditions and
A more detailed picture of the breakdown and
demand for loans to non-financial corpora-
change in NPEs by portfolio during the first
tions remained broadly unchanged in the third
quarter of 2016 relative to the second quarter,
Chart III.4 Percentage change of total expo-
in line with expectations in the previous sures, of performing exposures and of non-
performing exposures of Greek banks by portfo-
round of the survey, and no change is ex- lio in the first half of 2016
pected in the fourth quarter of 2016. % Δ total exposures
% Δ performing exposures
Business profits turned negative in the first % Δ non-performing exposures
1.0%
and second quarters of 2016, and total profit-
0.5%
0.0%
-0.5%
3
In compiling house price indices, the Bank of Greece uses a -1.0%
variant of the mix adjustment approach. To standardise real
-1.5%
estate properties and identify homogeneous, as far as possible,
market segments, the multiple stratification technique is used. -2.0%
Specifically, houses are classified in small groups with similar
-2.5%
characteristics (location, age and size), and the average price
(per square metre) is calculated for each group using the geo- -3.0%
metric mean; these prices are then aggregated, weighted on the
basis of the total value of transactions for each group. See -3.5%
http://www.bankofgreece.gr/BogDocumentEn/Methodology_of -4.0%
_Short_Term_Indicators_English.pdf Total Portfolio Business Loans Residential Loans Consumer Loans
Source: Bank of Greece.
Overview of the
Greek financial system
January 2017 19Chart III.5 Structure and change of total exposures and of non-performing exposures of the Greek com-
mercial banks by portfolio
TOTAL EXPOSURES: 240.3 EUR billion
Δ(2015-Η1 2016): -1.6%
Total non-performing exposures:
45.1%
Δ(2015-Η1 2016): +0.4%
44% 28%
Δ(2015-Η1 Δ(2015-Η1
2016): 2016): +5.5%
+0.4%
28%
Δ(2015-Η1
2016):
-4.3%
BUSINESS: 145.5 EUR billion RETAIL: 94.8 EUR billion
Δ(2015-Η1 2016): -1.7% Δ(2015-Η1 2016): -1.6%
Total non-performing Total non-performing
exposures: 44.7% exposures: 45.7%
Δ(2015-Η1 2016): +0.5% Δ(2015-Η1 2016): +0.2%
49%
41%
30% Δ(2015-Η1 23%
Δ(2015-Η1
Δ(2015-Η1 2016): Δ(2015-Η1
2016):
2016): -1.6% 2016): +1%
+2.8%
+4.5%
28%
29% Δ(2015-Η1
Δ(2015-Η1 2016):
2016): -1.2%
-7.1%
Large Corporate: Small & Medium Enterprises - SMEs:
51 EUR billion [Δ(2015-Η1 2016): -6.2%] 39.2 EUR billion [Δ(2015-Η1 2016): -1.4%]
Total non-performing Total non-performing
exposures: 29.1% exposures: 59.9%
Δ(2015-Η1 2016): -2.5% Δ(2015-Η1 2016): -1.2% Residential: 67.2 EUR billion Consumer: 27.6 EUR billion
[Δ(2015-Η1 2016): -1.9%] [Δ(2015-Η1 2016): -0.8%]
45% 48% Total non-performing exposures:
29% Δ(2015-Η1 26% Total non-performing
Δ(2015-Η1 Δ(2015-Η1 55.3%
2016): Δ(2015-Η1 exposures: 41.8%
2016): 2016):
+4.1% 2016): Δ(2015-Η1 2016): 0% Δ(2015-Η1 2016): +0.5%
-0.9% +1.6%
-0.5% 18%
40% 26%
Δ(2015-Η1 Δ(2015-Η1 Δ(2015-Η1
26% 2016): 2016): 65% 2016):
26% Δ(2015-Η1 +15.3%
Δ(2015-Η1 +0.1% -4.3%
Δ(2015-Η1 2016):
2016): 17%
2016): -3.5% Δ(2015-Η1
-11.9%
-11.5%
2016):
+0.1%
34%
Δ(2015-Η1
Small Business & Professionals – SBPs: Other business activities: 2016):
25 EUR billion [Δ(2015-Η1 2016): +1.8%] -1.6%
30.4 EUR billion [Δ(2015-Η1 2016): +2.5%]
Total non-performing Total non-performing
exposures: 67.2% exposures: 33.1%
Δ(2015-Η1 2016): +2.8% Δ(2015-Η1 2016): +5%
55% 15% 19% 45%
Δ(2015-Η1 Δ(2015-Η1 Δ(2015-Η1 Δ(2015-Η1 Unlikely to Pay
2016): 2016): 2016): 2016):
-0.8% +16.5% +21.5% +9.1%
> 90 dpd (excl Denounced)
37% Denounced exposuers
30% Δ(2015-Η1
Δ(2015-Η1 2016):
2016): +3% -8.4%
Source: Bank of Greece.
half of 2016 is given in Chart III.5. are less than 90 days past due, as well as total
performing exposures in arrears by 1 to 90
Indications about the future evolution of cred-
days. The ratio of exposures unlikely to pay
it risk are given by the amount of exposures
unlikely to pay4, which are not in arrears or
Greece, exposures unlikely to pay are considered as NPEs
4 according to qualitative criteria, although they are performing
According to the current framework of the European Banking
Authority (EBA) and the regulatory provisions of the Bank of or a little in arrears (Chart III.6 Non-performing exposures more than total NPEs, the 4.3% decrease in this category
90 days past due (excluding denounced loans)
is a positive development.
100% At the same time, denounced loans for which
90%
80%
no resolution and closure solution has been
70% reached are very high (91%).
60%
50% Indicators used for monitoring and as-
40%
30%
sessing NPEs
20%
Regarding indicators used for monitoring and
10%
0%
assessing NPEs, the following should be not-
Total Portfolio Business Loans Residential Loans Consumer Loans
91-180 dpd 181-360 dpd 361-720 dpd 721+ dpd ed:
Source: Bank of Greece.
The provisioning coverage ratio of NPEs
to total NPEs rose marginally in the first half remained generally stable during the first
of 2016 to 27.6%, from 26.2% at end-2015, half of 2016 (49.6%), suggesting that no
while the ratio of NPEs 1-90 days past due to increase in credit risk is expected in the
total performing exposures (early arrears) near term. At the same time, the Texas
stood at 12.2% in the first half of 2016, lower index (i.e. the ratio of NPEs to the sum
than at end-2015 (12.7%). It is noted that of tangible equity and loan loss reserves)
NPEs more than 90 days past due and de- reached 126%. Specifically, banks’ loan-
nounced loans comprise 28.3% and 44.2% of loss provisions came to a cumulative
NPEs, respectively. €53.8 billion in June 2016, compared
These indications provide an early warning with €51.8 billion in June 2015. As a re-
about the evolution of banks’ credit risk, war- sult, the coverage ratio is higher than the
ranting a comprehensive plan with a proper average for medium-sized European
toolkit for the management of early arrears. banking groups, which was 42.5% in the
It should be noted that 70% of total NPEs first quarter of 2016 (see Chart III.7).
more than 90 days past due (excluding de- Chart III.7 Provisioning coverage ratio of non-
performing exposures
nounced loans) are in arrears by more than Coverage Ratio (%) - Average ΕU (medium-sized banks)
Coverage Ratio (%) - Greece
one year. The corresponding percentages for 60.0%
residential loans are 75%, for business loans 49.3% 48.8% 50.1% 49.8% 49.6%
50.0% 46.1% 46.1% 45.9%
68% and for consumer loans, in arrears by 42.5%
40.0%
more than six months, 81%.
30.0%
It is noted that 48% of NPEs more than 90
20.0%
days past due (excluding denounced loans)
10.0%
are in arrears by more than 720 days and are
0.0%
on the rise; this finding points to strong con- Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
solidation of the situation and is indicative of Sources: Bank of Greece and European Central Bank.
the difficulties of effective management (see
Chart III.6).
Given that NPEs more than 90 days past due
(excluding denounced loans) make up 28% of
Overview of the
Greek financial system
January 2017 21Chart III.8 Forborne exposures by category and the ratio of forborne exposures over total exposures
50,000 25.0%
45,000
19.5%
40,000 18.6% 20.0%
17.6%
35,000 16.3%
15.6%
30,000 15.0%
25,000
EUR millions
20,000 10.0%
15,000
10,000 5.0%
5,000
0 0.0%
Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
Forborne exposures in arrears >90 dpd excl Denounced Loans (left axis)
Forborne exposures - Unlikely to Pay (left axis)
Forborne performing exposures (left axis)
% Forborne exposures over total exposures (left axis)
Source: Bank of Greece.
Total forborne exposures5 came to €46.7 Loan write-offs during the first half of
billion, rising by 8.6% in the first half of 2016 reached €1.6 billion, compared
2016 in comparison with end-2015. The with €687 million in the same period of
ratio of forborne exposures to total expo- 2015, and mainly concern denounced
sures rose to 19.5% in the first half of loans.
2016, from 17.6% at end-2015. In par- The collateral coverage ratio for NPEs
ticular, forborne performing exposures remains low (51%). It should be noted
rose by 12.1% over end-2015, compared that 81.3% of collateral is in the form of
with 7.2% for forborne NPEs. However, real estate. The portfolio subindices re-
it should be noted that 72.4% of expo- mained almost unchanged (75.6% for
sures unlikely to pay have been forborne housing loans, 14.5% for consumer loans
(see Chart II.8). and 49% for business loans). The collat-
eral coverage ratio for forborne NPEs is
Housing loans present the highest ratio
59%, reflecting banks’ tendency to seek
of forborne exposures to total housing
additional collateral in the context of
loan exposures (29.4%), compared with
forbearance solutions. However, the
19% for consumer loans and 15% for
above ratio is on the decline, as borrow-
business loans.
ers probably do not provide (perhaps due
to inability) collateral proportional to the
amounts of forborne exposures.
5
Bank of Greece Executive Committee Act 47/9.2.2015 pro- On a positive note, the flows of perform-
vides an indicative list of forbearance and resolution and clo-
sure solutions for performing and non-performing exposures. ing exposures that moved to NPE status
Overview of the
Greek financial system
January 2017 22Chart III.9 Net flows from performing exposures to non-performing exposures and the cure rate and
default rate
5,000 4.5% 5%
4,000 3.5% 4%
2.9%
3,000 2.3% 2.4% 3%
2,000 2.6% 2.8% 2%
2.6%
1,000 1.8% 1.6% 1%
EUR millions
0 0%
-1,000 -1%
-2,000 -2%
-3,000 -3%
-4,000 -4%
-5,000 -5%
Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
Net Flows from performing to non-performing exposures
Cure Rate
Default Rate
Source: Bank of Greece.
dropped considerably and the flows of past. Specifically, banks have turned to long-
NPEs that moved to performing status term solutions, which have risen by 31%
rose, pointing to an improvement in the since the start of the year and 61% since June
quality of the loan book. In particular, it 2015. The largest percentage concerns mainly
should be noted that the cure rate6 came business and housing loans, with the latter
to 2.6%, higher than the default rate7 rising by 145% in the first half of 2016 over
(2.4% – see Chart III.9). In June 2016, end-2015 (see Chart III.10).
net NPE flows reached €300 million,
well below the figure in the same period
of 2015 (€4.0 billion).
Regarding the management of NPEs, there is
a lengthening of the horizon of modifications;
it is mentioned that a considerable percentage
of contracts are remodified, even if a long-
term solution had been implemented in the
6
The cure rate is the ratio of NPEs moved to performing status
to total NPEs at the start of the period.
7
The default rate is the ratio of performing exposures moved to
NPE status to total performing exposures.
Overview of the
Greek financial system
January 2017 23Chart III.10 Forborne exposures by type of modification and portfolio
Business Loans Residential Loans Consumer Loans
30.00
25.00
20.00
+ 61%
EUR millions
15.00
10.00
5.00
0.00
Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
Long-Term Modifications Short-Term Modifications Closure Actions
Source: Bank of Greece.
However, 37.5% of total modified contracts long-term solution had been implemented,
(files) are remodified (see Chart III.11). This which raises doubts about banks’ ability to
trend is more obvious in loans for which a manage NPEs effectively.
Chart III.11 Remodified contracts over total modified contracts by type of modification
50.0%
45.0%
40.0% 37.5%
35.4%
35.0%
31.1%
29.4%
30.0%
24.8%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
Short-Term Modifications Long-Term Modifications Closure Actions Total Remodifications
Source: Bank of Greece.
Overview of the
Greek financial system
January 2017 24Credit risk by sector while the lowest ratios are observed in energy
Business loans amounted to €145.5 billion in (3.7%), public administration (7%), financial
the first half of 2016, accounting for 60.6% of corporations (27%) and shipping (30.9%).
Greek commercial banks’ total financing. As Management of NPLs
can be seen in Chart III.5, the NPE ratio for Managing NPLs is the most important chal-
business loans is mainly affected by the high lenge facing the banking system. In this con-
percentages for SME (59.9%) and SBP loans text, since the formulation of the national
(67.2%). NPL management strategy by the government
Regarding the structure of financing of the in August 2015, a number of actions have
Greek economy sectors, it should be noted been taken to tackle the problem. The aim
that 23% of total business loans has been ex- remains the same and is dual: to ease the bur-
tended to retail businesses, with an NPE ratio den on borrowers and to release resources that
almost equal to the average NPE ratio for could be channeled by credit institutions to
business exposures (45.1%). the real economy, supporting the financing of
viable firms.
As reflected in Chart III.12, very high NPE
ratios are recorded in the food service sector Key to this effort is creating appropriate con-
(76.3%), farming (62.7%), telecommunica- ditions by enhancing the supervisory and reg-
tions, informatics and media (58.4%), manu- ulatory framework so as to allow for the ef-
facturing (53.2%) and construction (52.8%), fective management of NPLs, both on and off
Chart III.12 Sectoral analysis of business loans over the first half of 2016
40,000 75.5% 76.3% 80%
35,000 67.1% 70%
62.7%
59.4%
30,000 58.4% 60%
55.1%
53.2% 52.8% 52.2%
49.4% 50.3%
25,000 46.6% 46.3% 45.2% 45.0% 50%
41.9%
20,000 36.5% 40%
30.9%
15,000 27.0% 30%
10,000 20%
5,000 7.0% 10%
3.7%
0 0%
EUR millions
Subcategories of
Manufacturing Sector Total exposures (left axis)
Non-performing exposures (left axis)
NPE ratio (%, right axis)
Source: Bank of Greece.
Overview of the
Greek financial system
January 2017 25the balance sheets of credit institutions. (b) borrowers’ credit ratings deteriorate
Challenges, risks and uncertainties further, in which case resolution measures
would not be able to offset a further increase
Despite the actions taken to improve the qual-
in the stock of NPLs.
ity of banks’ loan books, challenges remain as
the NPE ratio persists at very high levels. Enhancing the supervisory framework
However, in the first half of 2016 the growth Doubling up on its efforts to enhance the cur-
rate of NPEs was minimised. rent supervisory framework, in the second
In any case, despite improving liquidity con- half of 2016 the Bank of Greece took targeted
ditions (see Section 1.2), the lack of demand actions to improve credit institutions’ man-
by households and firms and continued delev- agement and monitoring of NPEs.
eraging dampen the prospects of a pick-up in The new Financial Facility Agreement re-
credit, while banks’ capacity to supply new quired a revision of the Code of Conduct in-
credit is very low. troduced by Law 4224/2013.
Consequently, effectively managing the stock Following the completion of the revision, the
of NPEs by streamlining the insolvency new Code of Conduct applies also to credit
framework and taking further measures to servicing and credit acquiring firms (Law
resolve NPEs are crucial for achieving sus- 4354/2015) and its procedures will only apply
tainable growth over the long term. to individuals, professionals and small busi-
Moreover, achieving credit institutions’ oper- nesses with an average turnover of less than
ational targets for the period 2016-2019, €1.0 million during the last three years. For
completing the legislative reform of out-of- the first time, different treatment is introduced
court debt settlement, simplifying the resolu- for medium-sized and large firms, to which,
tion and special liquidation of firms and, as requested by the Hellenic Bank Associa-
above all, creating a secondary market for tion, only the general principles will apply
loans, in which credit servicing and credit (full exception would be in conflict with Law
acquiring firms will participate, are additional 4224/2013). The time of the first notification
challenges. to join the Arrears Resolution Procedure is
moved from 30 days to 60 days for non-
In conclusion, credit risk will not decrease
payment of an instalment. The time limit for
soon if:
notification by the bank is extended from 15
(a) macroeconomic conditions turn out less
to 30 days and communication between credit
favourable than expected. Specifically, a
institutions and borrowers becomes more
prolongation of the recession in the Greek
flexible, as the Code clarifies which notifica-
economy would push the real estate market
tions must be sent in paper form and which by
lower; in case of loss of a household’s stable
email. The Code introduces the concept of a
income, it would no longer be able to meet its
minimum level of “reasonable living expens-
mortgage payments, even by selling its real
es” and extends the right of objection to (a)
estate, while banks’ recovery capacity
all natural persons, not only those whose resi-
through realisation of collateral would be sig-
dence is at stake; and (b) micro enterprises. It
nificantly affected.
requires the credit institution to calculate the
present value of the proposed settlement plan,
Overview of the
Greek financial system
January 2017 26and a recent estimate of the liquidation value Conduct and the calculation of banks’ opera-
of the relevant property in the event that a tional targets in the management of NPEs.
forbearance solution has been ruled out and a It should be noted that the Bank of Greece, in
resolution and closure action is proposed in- the context of the implementation of the na-
stead, which entails disposal of the borrow- tional strategy on NPLs, has set, in coopera-
er’s primary residence. It also requires credit tion with credit institutions and the SSM, op-
institutions to use certified appraisers and ap- erational targets regarding the management of
praisal standards in appraising the value of NPLs for the period June 2016-2019. The
any real estate (especially residence) involved targets, which were set by bank, specify clear-
in a workout. The Code also introduces spe- ly the percentage of reduction in NPLs that
cial treatment of borrowers belonging to so- credit institutions have to achieve, including
cially vulnerable groups, requiring credit in- the actions (e.g. loan write-offs, increase in
stitutions to adopt a policy regarding their long-term forbearance solutions, restructuring
communication with persons with disabilities. etc.) required for achieving the targets. To
For cooperating borrowers who provenly face facilitate the monitoring of operational tar-
serious financial distress, i.e. lack of real es- gets, as from September 2016 credit institu-
tate assets other than their residence, the ob- tions submit to the Bank of Greece quarterly
jective value of which is no more than reports8 on their performance against these
€140,000, and low disposable income, credit targets, which can be revised on an annual
institutions are required to propose either a basis in the light of progress in their imple-
long-term forbearance solution or, if not pos- mentation.
sible, a repayment schedule that is in keeping
Finally, to strengthen the regulatory frame-
with the minimum level of “reasonable living
work, the Bank of Greece revised Executive
expenses” and does not lead to over indebted-
Committee Act 82/8.3.2016 “Framework of
ness.
establishment and operation of credit servic-
Executive Committee Act 102/30.8.2016 re- ing or credit acquiring firms (concerning
vised Executive Committee Act 42/30.5.2014 credit institutions’ NPLs) (Law 4354/2015)”
“Supervisory framework for the management in order to provide clarifications and specify
of loans in arrears and non-performing loans”. the criteria of authorisation of such firms. To
This revision was necessary in order to im- this, end, one license has already been grant-
prove the level of information on credit insti- ed.
tutions’ management of NPEs by providing
The steps ahead
further analysis of management practices by
In the immediate future, an important priority
loan category. Moreover, it introduced tech-
– as well as obligation under the “Third Eco-
nical improvements to existing models in or-
nomic Adjustment Programme for Greece” –
der to allow for a more detailed presentation
is the revision of the out-of-court debt settle-
and monitoring of reported data, as well as of
the key and additional performance indica-
tors. Finally, reported data will include infor- 8
A detailed presentation of the targets is available (in Greek)
mation on the implementation of the Code of on the Bank of Greece website:
http//:www.bankofgreece.gr.BoGAttachments/Report_Operatio
nal_Targets_for_NPEs_GR.pdf.
Overview of the
Greek financial system
January 2017 27You can also read
