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The National Bank of Greece and Piraeus Bank split into good and bad banks because of irredeemable loans

04 October 2013 / 10:10:57  GRReporter
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The National Bank of Greece and Piraeus Bank, the two largest credit institutions in the country, will split into good and bad banks to get rid of the irredeemable loans that they themselves had granted in the past. A senior official of the National Bank of Greece announced the news to Reuters, specifying that the National Bank of Greece would be split by the end of 2013 and Piraeus Bank in the first quarter of 2014.
    The Greek banking system has granted 65 billion euro in uncollectible loans and this is why the International Monetary Fund, for a long time, has insisted on splitting the “sick” parts of the banks into separate units and on entrusting them to specialized management which has the know-how regarding the collection of outstanding amounts. Globally, this practice has been very successful as stated by experts of the fund.
    The problem is significant because the payments of 29.3% of all loans in Greece are being delayed due to the recession. This is an increase in bad loans which were 27.8% in the first quarter of 2013. This rate is more than four times higher than the euro area average, 7.15%, in 2012. The percentage of the National Bank of Greece is lower, 24.4%.
    The strategy of the banks will be clear after the consulting firm BlackRock completes its Troubled Asset Review, i.e. the analysis of problem loans. Then the financial institutions will have to determine which loans can be deferred so that they become repayable and what to do with the "dead" loans so that the bank portfolios suffer insignificant damage.
    Deputy executive director of the National Bank of Greece Petros Christodoulou told Reuters that the separation of irredeemable loans into a single institution would allow the bank to better deal with the problem and to turn some of them into repayable. It has already hired consultants and is already considering providing investors with shares of its subsidiary bad bank, which is to deal with the bad loans granted to small- and medium- sized enterprises which have already attracted the interest of specialized funds. Petros Christodoulou, former director of the Debt Management Agency and main player in last year's PSI (Private Sector Involvement) or the compulsory cancellation of part of the Greek debt held by private investors, told Reuters that the National Bank of Greece has already signed a pre-agreement with potential investors without a guarantee that it will extend to a formal contract.
    Regarding Piraeus Bank, Reuters refers to its deputy executive director Antimos Thomopoulous, who states that the split into a good and a bad bank would be a fact in the first quarter of 2014. In his opinion the market demands full transparency in terms of good and bad loans and it is logical to proceed to such a split, as the Greek economy is stabilizing and the downward trend in its development is approaching its end. Antimos Thomopoulous also states that the market requires concentrating the bad loans in a platform within the parent bank in order for it to benefit the most from their conversion into repayable loans.
    A separate management will carry out the rescheduling of the bad loans in each individual case. Indeed the bank's capitalization will suffer as it will incur losses but they will be limited. At the same time, the balance of the bank will improve since a significant proportion of the bad loans will not be present in it. Currently, because of the prolonged recession, the percentage of bad loans is very high in all Greek banks.
    Many investors and funds specializing in bad loans are interested in the opportunities offered by the troubled Greek banking system. Being defined as distress and, meaningfully, as vulture funds, they offer very low prices and therefore the parent banks have not yet signed formal contracts, as the damage they would suffer would be enormous. However, these funds will participate in the entities to which the banks will transfer their irredeemable loans.
    All this depends on the decision of the Bank of Greece which will use the data from the survey of the consultants of BlackRock to clarify the details. The financial stability fund will play an important role too, especially in the part concerning loans to troubled companies. The fund, being a shareholder in the four major banks, will insist on coordinated action in rescheduling the loans of different indebted sectors and companies.
    The third major Greek bank, Eurobank, has already separated its bad loans and entrusted them to its subsidiary FPS, Financial Planning Services. Alpha Bank has declined to comment.

 

Tags: National Bank of GreecePiraeus BankIrredeemable loansGood and bad banks
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