The Single Supervisory Mechanism, or SSM, is a new system of Banking supervision in Europe. It was created in 2013, and has granted the European Central Bank a supervisory role to monitor the financial stability of banks in the member states of the EU.
Joint supervisory teams are conducting reviews of the Greek banks to receive information and the progress on the important issue of non performing loans (NPL). In addition they require information regarding the changes in the bankruptcy code, the out of court settlement regarding the restructuring of non performing business loans, as well as the impending changes in the law of debt settlement towards banks, the treasury and public insurance (pension) funds. There was also an inquiry as to the outcome of legal protection from criminal and civil liability of banking executives that order loan restructuring.
Banks have been giving a timetable until next year to restructure non performing loans by reducing those non performing loans, and if this is not met then perhaps banks would be in need of another need of seed capital. The new code of conduct administered by the Central bank of Greece aims at restructuring non performing loans between the bank and the debtor, so that a settlement may be reached either by prolonging the grace period of the loan, reduction of interest rate, total or partial debt forgiveness, or final settlement, and taking into consideration the consumer's profile and ability to pay, and if there are any collateral which may be liquidated.
According to data published (10/2016) by the Central Bank of Greece, as of June 2016 the non performing loans amounted to 45.1% compared to 4.5% in 2007. Non performing loans towards small businesses amounted to 67.2%, and the percentage of NPL to medium size companies amounted to 59.9%, and consumer loans amounted to 55.3%.
As far as mortgage loans the NPL amounted to 44.7% and the smallest percentage is seen in the business loans where the NPL amounted to 29.1%.
If one breaks down the NPL's in sectors, the highest of the NPL is seen in the food - restaurant sector by 79.5%, textile by 75.9%, wood - paper - furniture by 71,7%, and agriculture by 62.7%. On the lower scale of NPL are oil - energy by 4.5%, and the financial sector by 27.5%.
It is obvious that the such high Non Performing Loans seen in the Greek banking system in such an economic status of six years of high taxes, recession and virtually no money held by consumers due to pension and wage cuts, and income taxes, operates negative in the operations of the banking system, increases risk of banks by cost of borrowing, increases the allowance for doubtful accounts on their balance sheets, and reduces bank revenues. It also reduces the liquidity of the banking system although that has been already influenced negatively by the capital controls imposed in 2015.
One interesting issue that is seen on the central bank's report is the non performing loans of two sectors that absorb about 16% of the total bank financing toward businesses: the construction sector and the property management companies. According to date as of June 2016, the amount in loans extended to the two prior sectors amounted to 23.5 billion euros, of which 12.9 billion are none performing. A percentage of 2/3 of those loans are over 90 days due.
Bill T. Alexandratos
