BANK OF GREECE

In the second quarter of 2021, the credit standards for loans to non-financial corporations (NFCs) remained unchanged compared with the first quarter of 2021, in line with the expectations expressed in the previous quarterly survey round.

Credit risks are expected to increase in the near future, exposing banks to the formation of high-end provisions that will hurt their results, at a time when they need internal capital formation to deal with losses from loan securitizations.

Banks will have to reconsider their credit risk forecasts, while the government is called upon to find a solution to reduce the deferred tax contribution on capital.

With the exception of some large companies that actually have access to new lending, the liquidity that reaches small - medium sized enterprises and households is minimal, governor of BoG pointed out.

In one-on-one meetings with each bank, the BoG staff presented the plan in detail, without, however, delving into all technical details that will have to be discussed and decided by the government.

The crisis caused by the pandemic creates a window of opportunity for the creation of this tool that should not be lost, according to central bank sources. Stournaras has stressed that the bad bank will support the planning of banks and be available on a voluntary basis.

As the BoG governor Giannis Stournaras explained, the "Hercules" program that reduces problem loans through securitizations with government guarantees is progressing, but with problems, as the coronavirus pandemic affects securitization markets and the value of collateral.

Monetary policy was "the only game in town" to fight deflation in 2015, Bank of Greece Governor said, defending the bond buying programme of the ECB. "Decisions which provide fertile grounds for backtracking on European integration are rather harmful".

"Risks for banks under the pandemic are mostly credit risks, related to the depth and duration of the recession. Hence, banks should be careful enough to protect their balance sheets, while at the same time using all the considerable flexibility and liquidity granted by the ECB to provide credit to businesses and thus contribute to keeping the productive capacity of the economy intact. It is an unfortunate development that, at the moment that Greek banks had started to achieve a remarkable reduction of non-performing loans (NPLs), the pandemic has increased the risk of a reversal."

The bank's technocrats examined in detail all the alternatives for tackling the problem (maintaining the current strategy of loan securitizations, capital increases, bad bank, etc.) and concluded that creating a single bad bank achieves maximum efficiency, as it also achieves the largest reduction in non-performing loans per unit of capital.