Greece’s non-performing loan crisis under control after fire-sale of foreclosed homes

EPA-EFE/ORESTIS PANAGIOTOU

A man sitting on a park bench looks down at a residential district in central Athens. The Greek housing market has been severely hit by years of economic crisis.

Greece’s non-performing loan crisis under control after fire-sale of foreclosed homes


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Greek systemic banks outperformed targets to reduce their “bad loans,” the Bank of Greece reported on Thursday.

The report was seen as critical for the credit-outlook of four systemic banks; Greece has the biggest share of Non-Performing Loans (NPLs) in Europe.

Greek banks offloaded €4,7bn since June 2016; that is a 7% drop. Since June 2016 the total bad debt portfolio fell from 107bn to €95,7bn or from 50,5% to 43% of their total assets. Greek NPLs weigh three times more on the banking portfolio than the second in the Eurozone, Italy.

The objective set by the ECB is to reduce the Greek NPLs portfolio to 35% by the end of 2019.

At the height of the Greek crisis, unemployment reached 28%; the biggest share of non-performing loans are consumer loans, small businesses loans and mortgages. In 2008, the Greek banking system had a bad loan portfolio of merely 5,5% of its total assets or €14,5bn.

Offloading NPLs requires a fire sale of houses in a country that has one of the biggest share of private home-ownership in Europe. In the latest European Home Ownership report in February 2018, Greek homeownership declined from 75,1% in 2015 to 73,9%. The average rate of home ownership in the Eurozone is 66,5%.

The fire sale has been facilitated by a new system of electronic auctions of foreclosed properties, which was a key term of the €86bn bailout agreement in 2015.

Today, 21% of Greek households live in rented accommodation. Over 2017 the drop was the sharpest in Greece than in any other EU member state. The banking sector has severely limited issuing new mortgages, becoming the last in the Eurozone with just 13,9% of new loans, second only to Italy with 15,9%. The Eurozone average is just under 28% of the loan portfolio.

Cutting the share of NPLs would free up capital to allow lending in the economy, which is only slowly recovering despite a positive economic climate in the Eurozone.

epa05954889 Activists argue with a notary (R) while attempting to stop the auction of foreclosure properties seized by banks, in an Athens court, Athens, Greece, 10 May 2017. Activists from small leftist groups have been disrupting auctions across Greece for several months with the aim of protecting small businessmen and families facing foreclosures. EPA/ORESTIS PANAGIOTOU GREECE OUT

Activists argue with a notary (R) while attempting to stop the auction of foreclosure properties seized by banks, in an Athens court, Athens, Greece, 10 May 2017. EPA/ORESTIS PANAGIOTOU GREECE OUT

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