Tuesday, 6 June 2017

Banks to liquidate €11.5bn of property

Attention is focused on whether Greece will receive a rescheduling of its public debt at the June 15 Eurogroup. Less attention is lavished on private Greek debt. 

The Bank of Greece on Tuesday published its targets for the reduction of non-performing exposures (loans that haven’t been serviced for at least 90 days), which have reached a staggering €105.2bn, or 60 percent of GDP.[1]

The banking system plans to reduce these to €98.2bn by the end of the year, €83.3bn by the end of next year and €66.7bn by the end of 2019 (see table). The targets are back-loaded, which means €7bn in this year, €15bn next year and €17.5bn in 2019, an election year.

Source: Bank of Greece, 7 June 2017

The Bank says this will happen mainly through rescheduling and write-offs, and to a lesser extent through liquidation (property repossessions), loan sales and collection.

This total of €40.2bn of loans to be adjusted breaks into the following main categories:
Collections:  €6bn
Liquidations: €11.5bn
Sales: €7.4bn
Write-offs: €13.9bn

Source: Bank of Greece, 7 June 2017

The assumption, therefore, is that banks have the financial health to absorb €13.9bn in write-offs over three years.

Liquidation is also a major political issue. Ever since Greece’s third bailout loan of 2015, primary residences are no longer protected, so families could be turfed out for the first time in the eight-year depression.

It is also a legal issue. Bankers do not feel entirely comfortable making €11.5bn in property repossessions and sales over three years, because they don’t feel the law protects them from accusations of fraud should the entire operation sour politically on the government. There has been a precedent. Last September, notaries-public recused themselves from home auctions saying that the legal framework contained too many grey areas, leaving them to draw people’s ire. Auctions drew to a halt. 

[1] Non-performance is high across all categories: 42.2 percent in residential, 54.2 in consumer and 45 percent in business loans.

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