General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
July 31, 2018

IMF published its staff report under the 2018 Article IV consultation with Greece. Directors urged the authorities to accelerate efforts to address high non-performing loans (NPLs) and restore lending. They encouraged banks to step up use of the strengthened financial sector legislative and regulatory frameworks that have created a better environment for addressing high non-performing exposures (NPEs), including through the development of a secondary market for NPLs. They also called for building up of capital buffers, further steps to mitigate liquidity and funding risks, and stronger bank internal governance.

The assessment highlights that, to restore growth-enhancing lending, the focus should be on healing banks’ balance sheets. Bank balance sheets are weak and credit continues to contract. As of end-March 2018, NPEs of Greek banks were among the highest in EU at 49% of total loans, with a coverage ratio of 49%. Banks have so far met the NPE reduction targets submitted to the Single Supervisory Mechanism (SSM), but in large part because the targets are backloaded. Moreover, banks have mostly relied on write-offs to reduce NPEs, rather than on sustainable restructurings. Nevertheless, there has been some more recent progress in NPE reduction, helped by a better legal enabling environment. NPE sales have commenced, with several projects underway and the number of e-auctions of foreclosed properties is rising.Among other factors, increased usage of repo transactions, higher government deposits, and further deleveraging, have allowed banks to reduce Emergency Liquidity Assistance (ELA) to just under EUR 10 billion (a EUR 30 billion reduction year-on-year). In early July, S&P upgraded the ratings of all four major banks.

The authorities have strengthened financial sector legislative and regulatory frameworks, but banks’ capacity to provide credit remains constrained. Banks also face significant challenges regarding asset-liability management, as highlighted by systematic ongoing breaches of liquidity requirements. Capital flow management measures (CFMs) continue to be lifted in steps, most recently in June, but remaining limits are unlikely to be removed before 2019. Bank governance has improved (boards and senior management have been strengthened), but more is needed to ensure compliance with best-practice standards. These factors continue to constrain banks’ ability to meet credit demand. The discussions focused on the following steps needed to hasten the recovery of the financial sector and restore its capacity to support the economy:

  • More ambitious NPE reduction targets and supervisory incentives.
  • Proactive build-up of capital buffers, as needed. Over a medium-term horizon, banks will need to absorb the phasing-in of the new IFRS 9 rules and build up Minimum Requirements for Own Funds and Eligible Liabilities (MREL).
  • Steps to address liquidity and funding risks. Banks need to narrow maturity gaps and reduce asset encumbrance. Banks will need to secure liquidity at a sustainable cost and continue deleveraging.
  • Measures to further strengthen bank governance. The Bank of Greece and Single Supervisory Mechanism should increase their follow-up of progress in bank internal governance and related supervisory action, to address important operational deficiencies and loopholes in the internal control environment, the risk management framework, and the governance of NPL management and performance practices.
  • Effective implementation of legal reforms. The authorities should continue to adjust legislative frameworks as needed to facilitate NPE resolution.
  • Continued liberalization of CFMs in a prudent, conditions-based manner. Gradual relaxation should continue as planned. Ensuring sufficient bank liquidity while CFMs are relaxed will be critical to preserve financial stability.


Related Link: Staff Report

Keywords: Europe, Greece, Banking, Article IV, NPLs, IFRS 9, MREL, IMF

Related Insights

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2617