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

    FED Revises Capital Planning and Stress Testing Requirements for Banks

    FED finalized a rule that updates capital planning requirements to reflect the new framework from 2019 that sorts large banks into categories, with requirements that are tailored to the risks of each category.

    January 19, 2021 WebPage Regulatory News
    News

    ECB Releases Results of Bank Lending Survey for Fourth Quarter of 2020

    ECB published results of the quarterly lending survey conducted on 143 banks in the euro area.

    January 19, 2021 WebPage Regulatory News
    News

    ESAs Publish Reporting Templates for Financial Conglomerates

    ESAs published the final draft implementing technical standards on reporting of intra-group transactions and risk concentration of financial conglomerates subject to the supplementary supervision in EU.

    January 18, 2021 WebPage Regulatory News
    News

    EBA Publishes Report on Asset Encumbrance of Banks in EU

    EBA published the annual report on asset encumbrance of banks in EU.

    January 18, 2021 WebPage Regulatory News
    News

    MAS Revises Guidelines on Technology Risk Management

    MAS revised the guidelines that address technology and cyber risks of financial institutions, in an environment of growing use of cloud technologies, application programming interfaces, and rapid software development.

    January 18, 2021 WebPage Regulatory News
    News

    US Agencies Publish Updates for Call Reports, FFIEC 101, and FR Y-9C

    FED updated the reporting form and instructions for the FR Y-9C report on consolidated financial statements for holding companies.

    January 15, 2021 WebPage Regulatory News
    News

    EBA Proposes Guidelines for Establishing Intermediate Parent Entities

    EBA issued a consultation paper on the guidelines on monitoring of the threshold and other procedural aspects of the establishment of intermediate EU parent undertakings, or IPUs, as laid down in the Capital Requirements Directive.

    January 15, 2021 WebPage Regulatory News
    News

    EC Adopts Financial Reporting Changes Arising from Benchmark Reforms

    EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.

    January 14, 2021 WebPage Regulatory News
    News

    BIS Bulletin Examines Key Elements of Policy Response to Cyber Risk

    BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.

    January 14, 2021 WebPage Regulatory News
    News

    HMT Updates List of Post-Brexit Equivalence Decisions in UK

    HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.

    January 14, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6462