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Bad loans: Why Greek bankers are now concerned

Top bank officials are concerned about the outcome of talks regarding the tackling bad loans and the result that is going to be for the greek banks.

Yiannis Papadogiannis

Top bank officials are concerned about the outcome of talks regarding the proposal put together by the Hellenic Financial Stability Fund (HFSF), known as the Asset Protection Scheme (APS), and the government's handling of a second plan aimed at tackling bad loans put together by the Bank of Greece. Both tools are considered to be of vital importance in reducing non-performing loans (NPLs) held by Greek lenders.

According to sources, conditions in talks held between officials from the country's systemic banks and Greek Deputy Finance Minister George Zavvos (responsible for the country's financial system) have not been the best, with Mr Zavvos announcing to bank officials in their last meeting that the APS plan has been submitted to European authorities for approval. The deputy minister said that he was confident the plan would be approved without, however, presenting any of the details to bank officials, sources added.

When bank officials offered to have a look at the proposal and offer their technical support in ongoing negotiations between the Finance Ministry and the European Commission, the deputy minister turned the offer down on the grounds that there is no time for lengthy talks.

Crucial details

The details of the plan will be decisive in determing its success, as they must be structured in a way so that lenders can make use of the program. Adversely, if the terms are not favorable for banks, they will not make use of the plan, even if approved by European authorities.

These terms and decisions are highly technical, such as the amount of commission to be paid to the state by the banks. Without being suitably handled, the whole program could fail to take off. This means that the program could be approved and made available to lenders but they may bypass the program.

Sources add that Bank of Greece officials have asked that pressure be put on European authorities to push the APS plan ahead, adding that decisions cannot be made on Greece without the country taking an active role in matters.

Even though the recently elected Greek government has repeatedly said that it intends to make use of the Bank of Greece proposal, which tackles both the issues of non-performing loans and deferred tax credits, nothing has been effectively done about it.

During his speech at the Thessaloniki Trade Fair in Thessaloniki, Prime Minister Kyriakos Mitsotakis referred only to the APS plan and changes to bankruptcy laws, avoiding any reference to the central bank's proposal.

A joint committee set up by the Finance Ministry and the Bank of Greece for the promotion of this plan, which had been announced by the previous Finance Minister Euclid Tsakalotos, was never set up and there appears to be no intention to do so under the new government.

As things stand right now, it appears that a decision has been made not to promote both plans at the same time, while the deputy minister, with his vast experience at the European Commission, has decided against moving ahead with the Bank of Greece proposal. This has drawn criticism from bankers and large institutional investors and shareholders, as they believe that conditions are suitable, with the right arguments and negotiations, to take advantage of the positive environment and secure a solution on NPLs that just a few years ago would have been unheard of.

Yiannis Papadogiannis

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