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Greek banks expect distressed funds to save them

08 March 2013 / 15:03:14  GRReporter
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Greece expects foreign distressed funds, whose main scope of activity is buying bad loans, to enter the country soon. It is expected in the coming months that Greek banks will try to clear some of the excess burdens in their balance sheets. 25% of the bank loans in the country, or around 57 billion euro, are currently not being repaid as shown by the latest data of the Bank of Greece cited by Naftemporiki. Currently, the government is preparing a bill stipulating that distressed funds, which bought or will buy loans in the red, should be registered in Greece or should have a representative in the country at least. "Our goal is to ensure that Greek borrowers will be able to contact (the fund) in the country," a senior member of the government tells the Greek media.

In a shrinking market and low liquidity, banks are preparing to reduce their assets after the recapitalization. The refinancing process of banks in Greece following the damage caused by the debt restructuring is still slow but according to experts from the banking sector, this is not fatal. Banks are expected to sell some of the "good" loans as part of the assets reduction programme. Bringing the financial situation in the country to its normal will allow banks to offer in the market blocks of "bad" loans, which the so-called distressed funds will cover. Financial analysts insist that the funds will have to collect the loans in compliance with the current Greek legislation.

The ban on property seizure for unpaid obligations that are up to 200,000 euro remain in force at present. This moratorium on outstanding bank obligations will be valid until 31 December this year. The majority of mortgage and business loans to small businesses and sole traders are within this range and many households are worried that they may end up in the street after the ban on seizure is cancelled.

Meanwhile, the government is preparing to extend the influence of the law on the relief of part of the debts of households, which are in dire need. It stipulates that households with no income due to unemployment or poor health and with a mortgage are entitled to be relieved from 80% of the burden of their bank obligations in the case of payment of an only home and if the family does not own other real estate. A very small number of people benefited from the measure and despite its social nature, it has not helped much to improve the situation of families with the lowest incomes and bank obligations.

Another measure, of which more than 700,000 people with bank loans have already taken advantage, is rescheduling the repayment of loans, which reduces the monthly instalment. Since the amount of the monthly payment does not change, this measure is very successful among citizens with reduced income compared to the period before the crisis. Bankers are seriously concerned that the increase in the number of customers willing to renegotiate the terms of their loans will worsen the problems in the balance sheets of the financial institutions.

The lenders’ mission and the association of Greek banks do not welcome the government's idea to allow additional relief of bad loans. This will further increase the losses of the banks and increase the need for funds for bank recapitalization. The government, bankers and institutional lenders have been holding a series of meetings to discuss how to improve the situation. The latest information from the negotiations between the government and the supervisory Troika shows that changes in the law to relieve the borrowers will result in additional need of one billion euro for refinancing. According to the government, the additional resources that are necessary to meet the needs of banks are one billion euro whereas according to the association of Greek banks the amount reaches three billion euro.

Tags: EconomyMarketsBanks.Distressed fundsGreeceCrisis
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