Greek banks have passed successfully the European Central Bank’s stress tests in May 2018, yet are still burdened with record levels of non-performing loans in Europe. By the end of March 2018, the gross on-balance non-performing loans amounted to €92.3 billion, corresponding to 48.5% of the total gross loans of the Greek banking system at that date. Broken down by segment, the NPL ratio was no less than 57.2, 43.9 and 49.6% for consumer, residential and business loans, respectively (source: Bank of Greece). There is no doubt that such large NPE overhang weighs materially on banks’ profitability and capital adequacy. Tackling the NPE problem remains therefore a catalyst for making banks again commercially functionable and in position to support the real economy. For the same reason Greek lenders are asked to reduce by the end of 2019 non-performing exposures by 37%, to €64.6 billion while non-performing loans shall fall 47% to €38.6 billion. To that direction a series of legal reforms were implemented with the aim to create an active secondary market for NPL loans.
A milestone towards developing an NPL secondary market has been the introduction of the Law 4354/2015, the so-called NPL Law. Initially intended to capture only non-performing loans, the NPL Law has in the meantime been expanded to cover the servicing and acquisition of all forms of bank credit receivables. The main pillar of the new regime is the ability of special purpose and licensed loan servicers to service bank credits and loans, a business model which until then remained a privilege of licensed credit institutions.
Banks in Greece are one of the most significant pillars of the economy. In the past they have extensively funded all major investment activities and the modernization of the infrastructure of the country along with consumers and SME’s. The Greek banks are of course suffering from the severe financial situation of the country which still persists after almost 10 years of financial crisis. Although the financial crisis in Greece was mainly a crisis of the Greek State, the banks where indirectly affected as they lost access to the market and had to find refuge to the European Central Bank and the Bank of Greece for liquidity in a number of occasions In fact, the Greek banking sector was required to successfully undergo a number of recapitalization exercises, with the third and most recent taking place at the end of 2015. Following this last recapitalization, the share capital percentage owned by the Greek State through the Hellenic Financial Stability Fund has been significantly reduced and the majority of the bank shares are now owned by the private sector.
There are four systemic banks today in the country: Alpha Bank, Eurobank, National Bank of Greece, and Piraeus Bank. All these have absorbed during the last 3 years all the smaller banks that existed in the country. The only remaining non systemic bank is Attica Bank, while HSBC is the major foreign bank with a presence in Greece.
The Bank of Greece is the regulatory authority in the country. It is a member of the Eurosystem since Greece is a member of the Eurozone and its Governor sits in the Board of the European Central Bank. However, in accordance with the European Banking Union framework, the European Central Bank and specifically the Single Supervisory Mechanism (SSM) are in charge of the supervision of the four systemic banks. Because of the fact that all Greek banks are listed companies, they also fall under the Supervision of the Hellenic Capital markets Commission (HCMC) exclusively for matters for which the capital markets legislation is applicable.
