Bank of Greece (BoG), the country's central bank, has launched a tender to select a consultant who will contribute to the technical details of a plan to create a bad bank. The BoG is aiming to choose a consultant in the next two weeks so that it can start work on the plan by the end of June and complete it in the fall.
At the core of the BoG plan is to drastically tackle the large stock of Greece's non-performing loans while also handling the issue of deferred tax credits (DTC), a problem that has been hanging over the country's financial system for years. Solving the issue of deferred taxation is a prerequisite for restoring confidence in capital amounts held by banks so that they can finance the economy and strengthen growth rates.
According to sources, the BoG is looking at the DTC issue at a new level in order to find an overall solution to the banking problem. Particular emphasis will be placed on separating non-performing loans incurred before the pandemic and those that arose after the pandemic, taking into account the rules on state aid.
The bad bank will be flexible while offering alternative options that meet the special needs of each lender, both in terms of non-performing loans and deferred taxation.
The BoG team has examined in detail all alternatives in dealing with the problem (maintaining the existing strategy of securitizations, capital increases, bad bank, etc.) and concluded that creating a bad bank gets the best results and achieves the largest reduction in non-performing loans per unit of capital.
It is noted that the transfer of problem loans from the systemic banks to the bad bank will be on a voluntary basis and lenders will have the ability to take advantage of any other alternative.
Speaking in parliament last week, BoG governor Yiannis Stournaras noted that the state's "Hercules" program aimed at reducing problem loans through securitizations with government guarantees is progressing, but is experiencing problems, as the coronavirus pandemic is affecting markets and the value of the collateral.
Even with the full implementation of the Hercules plan, stressed Stournaras, not all non-performing loans will be covered, but about 32 billion euros out of a total of 70 billion euros, making it necessary for other plans to be prepared.