Featured Product

    IMF Report Discusses Measures to Address Issue of NPEs in Greece

    March 12, 2019

    IMF published its staff report under the First Post-Program Monitoring Discussions with Greece. Directors encouraged the authorities to take a more comprehensive, well-coordinated approach to strengthening bank balance sheets and reviving growth-enhancing lending. Noting the high level of non-performing exposures (NPEs), the IMF Directors encouraged authorities to bring together key stakeholders and base policy measures on cost-efficiency assessments of various NPE reduction options, while considering the impact of forthcoming regulatory changes.

    The report highlights that bank liquidity improved further in 2018, but balance sheets remain significantly impaired and deleveraging continues. An ongoing recovery in private deposits and an increase in State government deposits in commercial banks have facilitated near elimination of Emergency Liquidity Assistance and further liberalization of capital flow management measures. However, the banking system as a whole remains short of prudential liquidity requirements and NPEs remain the highest in Europe, at 47% of outstanding loans (EUR 85 billion) at the end of September. Sale of NPEs have increased recently, with write-offs being among the key drivers of NPE reduction and the new NPE creation exceeding "curing." 

    The Greek banking system remains highly vulnerable. NPEs remain high and the quality of the performing loan book is uncertain due to borrowers’ stretched balance sheets, the high share of variable interest rate loans, and a weak payment culture. Under the Single Supervisory Mechanism, or SSM, pressure, banks are aiming for faster NPE reduction, but their efforts are limited by low capital (fully loaded), weak profitability, and tight liquidity. Meanwhile, any delays in system clean-up would slow the return of lending and would leave the banking system (and financial stability) vulnerable to a materialization of risks. This could in turn fuel a negative feedback loop of declining confidence, reemerging liquidity shortages, and capital depletion. The State also relies on bank participation in its debt issuance and interest rate hedging. Banks’ total exposure to the sovereign is close to 180% of their combined common equity tier 1 (CET1). Given the current exposures, staff estimates that a 100 basis points increase in sovereign securities’ yields would result in a 0.5 percentage point drop in CET1 ratios, on average.

    Various stakeholders are calling for a more active policy stance to repair bank balance sheets, but there are mixed views about the best way forward. Staff from the European Institutions and the IMF continue to press for improvements and for better take-up of private sector-led NPE-reduction strategies, but progress has been slow. The government, the Hellenic Financial Stability Fund, and the Bank of Greece have proposed a variety of State-supported NPE reduction solutions, which will need to be assessed for compatibility with EU state-aid rules. Banks would prefer a menu of options, with some banks moving ahead independently of these proposed schemes. In this context, staff stressed the urgency of comprehensive, well-coordinated actions to repair private-sector balance sheets, improve the payment culture, and (ultimately) revive bank lending. This will require efforts in several interlinked areas:

    • Building up capital to support ambitious NPE-reduction targets
    • Strengthening existing NPE-reduction toolkits, aimed to facilitate private solutions 
    • Carefully assessing options for State support of system-wide NPE reduction
    • Improving banks’ viability and governance
    • Liberalizing capital flow management measures

     

    Related Link: Staff Report

     

    Keywords: Europe, Greece, Banking, Securities, SSM, Post-Program Monitoring, CET-1, Liquidity Risk, NPLs, Bank of Greece, IMF

    Featured Experts
    Related Articles
    News

    EBA Issues Erratum for Phase 2 Package of Reporting Framework 3.0

    EBA published an erratum for the technical package on phase 2 of the reporting framework 3.0.

    April 08, 2021 WebPage Regulatory News
    News

    MAS Amends Notice on Related Party Transactions of Banks

    MAS amended Notice 643A that addresses requirements for banks to prepare statements of exposures and credit facilities to related concerns or parties.

    April 08, 2021 WebPage Regulatory News
    News

    ECB Amends Guideline on Euro Short-Term Rate

    ECB has published, in the Official Journal of the European Union, the Guideline 2021/565 on the euro short-term rate (€STR) and this guideline amends the previous ECB Guideline 2019/1265.

    April 07, 2021 WebPage Regulatory News
    News

    EBA Consults on Standards Related to FRTB-SA

    EBA launched a consultation on the draft regulatory technical standards on the list of countries with an advanced economy for calculating the equity risk under the alternative standardized approach (FRTB-SA).

    April 07, 2021 WebPage Regulatory News
    News

    PRA Proposes Rules Related to IRB Approach for Credit Risk

    PRA is proposing, via CP7/21, the approach to implementing new requirements related to the specification of the nature, severity, and duration of an economic downturn in the internal ratings-based (IRB) approach to credit risk.

    April 07, 2021 WebPage Regulatory News
    News

    BoE Outlines Regulatory Treatment of Recovery Loan Scheme of UK

    The UK government launched the Recovery Loan Scheme (RLS) as part of its continued COVID-19 support for UK businesses, as announced by HM Treasury on March 03, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    FSB Addresses G20 on COVID Measures, TBTF Reforms, and Climate Risks

    FSB published a letter, from its Chair Randal K. Quarles, to the G20 Finance Ministers and Central Bank Governors, ahead of their virtual meeting on April 07, 2021.

    April 06, 2021 WebPage Regulatory News
    News

    OSFI Unwinds Temporary Increase to Covered Bond Limit for Banks

    OSFI issued a letter to the deposit-taking institutions issuing covered bonds and announced the unwinding of the temporary increase to the covered bond limit for deposit-taking institutions, effective immediately.

    April 06, 2021 WebPage Regulatory News
    News

    EU Amends CRR and Securitization Regulation in Response to Pandemic

    To support recovery from the COVID-19 crisis, EU has published two regulations to amend the securitization framework, as set out in the Securitization Regulation (2017/2402) and the Capital Requirements Regulation or CRR (575/2013).

    April 06, 2021 WebPage Regulatory News
    News

    HM Treasury Announces G7 Agreement on Green Agenda Ahead of COP26

    HM Treasury announced that G7 Finance Ministers and Central Bank Governors met ahead of COP 26, the 2021 UN Climate Change Conference, and agreed on green agenda.

    April 06, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6821