Featured Product

    IMF Publishes Report on 2018 Article IV Consultation with Greece

    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

    Featured Experts
    Related Articles
    News

    Regulators Fine Goldman Sachs for Risk Management Failures

    FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).

    October 23, 2020 WebPage Regulatory News
    News

    Canada Hosts International Conference of Banking Supervisors

    BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.

    October 22, 2020 WebPage Regulatory News
    News

    FCA Proposes More Measures to Help Insurance Customers Amid Crisis

    FCA proposed guidance on how firms should continue to seek to help customers who hold insurance and premium finance products and may be in financial difficulty because of COVID-19, after October 31, 2020.

    October 21, 2020 WebPage Regulatory News
    News

    EBA Issues Opinion to Address Risk Stemming from Legacy Instruments

    EBA issued an opinion on prudential treatment of the legacy instruments as the grandfathering period nears an end on December 31, 2021.

    October 21, 2020 WebPage Regulatory News
    News

    ESRB Publishes Non-Bank Financial Intermediation Risk Monitor for 2020

    ESRB published the fifth issue of the EU Non-bank Financial Intermediation Risk Monitor 2020 (NBFI Monitor).

    October 21, 2020 WebPage Regulatory News
    News

    HM Treasury Publishes Policy Statement Amending Benchmarks Regulation

    HM Treasury announced that the new Financial Services Bill has been introduced in the Parliament.

    October 21, 2020 WebPage Regulatory News
    News

    APRA Initiates Action Against a Bank for Liquidity Compliance Breach

    APRA announced that it has increased the minimum liquidity requirement of Bendigo and Adelaide Bank for failing to comply with the prudential standard on liquidity.

    October 21, 2020 WebPage Regulatory News
    News

    PRA Consults on Implementation of Certain Provisions of CRD5 and CRR2

    PRA published the consultation paper CP17/20 to propose changes to certain rules, supervisory statements, and statements of policy to implement elements of the Capital Requirements Directive (CRD5).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule to Reduce Impact of Large Bank Failures

    US Agencies adopted a final rule that applies to advanced approaches banking organizations and aims to reduce interconnectedness in the financial system as well as to reduce contagion risks associated with the failure of a global systemically important bank (G-SIB).

    October 20, 2020 WebPage Regulatory News
    News

    US Agencies Finalize Rule on Net Stable Funding Ratio Requirements

    US Agencies (FDIC, FED, and OCC) adopted a final rule that implements the net stable funding ratio (NSFR) for certain large banking organizations.

    October 20, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 6004