Greece’s biggest banks, which saw their share prices plummet on Wednesday, have promised to significantly cut their bad-debt holdings as they seek to fend off pressure from supervisors and restore investor confidence, people with knowledge of the matter said.
Banks including Piraeus Bank SA and National Bank of Greece SA have sent a pledge to the European
Central Bank, committing themselves to reducing non-performing exposures as a group by about 60 percent by the end of 2021, two people said. The banks currently project a cut of about 27 percent by the end of next year.
Soured loans at the country’s four systematically important banks stood at 88.6 billion euros at the end of June, equal to about half of Greece’s annual economic output. Greek bank stocks have dropped by around 97 percent since Alexis Tsipras was catapulted into office in 2015, leading to a clash with creditors.
The four lenders, which also include Eurobank Ergasias SA and Alpha Bank AE, and the ECB’s Single Supervisory Mechanism have yet to agree on the newly submitted targets, the people said. Representatives for the four big banks declined to comment.
Piraeus hit its lowest price ever on Wednesday, leading Greek banking stocks down. Chief Executive Officer Christos Megalou told Reuters that the bank is looking for an opportunity to issue debt capital after Bloomberg reported on Friday that the ECB told the lender to increase capital this year. The benchmark FTSE Athex banks index dropped as much as 18 percent and was down 10 percent as of 1:03 p.m. in Athens. The index has fallen by 43 percent this year.
Under the proposed plans, the four lenders would reduce their bad debt piles to somewhere between 15 percent and 21 percent, according to the people, compared with the more than 40 percent they all hold now. Piraeus, which has the highest bad-loan ratio at 54.7 percent, would cut that to 21 percent by the end of 2021.
Most of the reductions would be achieved via loan sales and securitizations of portfolios, one of the people said. Lenders have also said that about a third of the cleanup will be met through auctions of foreclosed real estate assets. Failure to meet the targets could result into regulatory penalties, including demands to raise more capital.
“As ambitious as NPE reduction targets may be, they are expected to remain
at elevated levels for a long period of time, with banks barely expected to generate any capital organically as they allocate all their pre-provision income towards booking top-up provisions over time to increase coverage to levels more in line with the marks observed in the market,” Goldman Sachs said in a report dated Oct. 2.
Most of what is considered regulatory capital in Greece’s banks consists of deferred tax claims against the country, and that hampers their ability to withstand losses that would come with sharp reductions in their non-performing loans.
Bank 2021 NPE Target % Current
National Bank of Greece 18 42.1
Piraeus 21 54.7
Alpha Bank 20 51.9
Eurobank 15 40.7
