* Around 30 billion euros in loans for “vacation” maturing
* Banks offer lower repayment plans to keep loans performing
* The central bank predicts that 8-10 billion euros in loans could go wrong
ATHENS, March 3 (Reuters) – Greek banks plan to return borrowers to normal debt service schedules once repayment holidays introduced during the coronavirus crisis end so they can avoid a sudden shock which could cause a wave of defaults.
Greek banks have deferred around 30 billion euros ($ 36.26 billion) in loans last year to help 400,000 borrowers – individuals and businesses – cope with the financial fallout from the COVID pandemic -19, said the country’s banking association.
But according to European Banking Authority rules, deferral periods cannot exceed nine months, which means time is running out and borrowers have to resume their normal payments soon.
Some fear that a sudden return to normal in repayments by borrowers weakened by coronavirus lockdowns will add to banks’ already high levels of bad loans. As a result, banks are considering a variety of “phased” repayment plans.
“It is necessary to have such phased payment plans to avoid cliff edge effects,” Bank of Greece Governor Yannis Stournaras told Reuters. “But banks need to make the right arrangements. “
The Bank of Greece has estimated that banks are likely to face € 8.0 billion to € 10.0 billion in new bad loans due to the pandemic.
The amount of deferred loans, around 17.4% of Greece’s projected GDP for this year, underscores the seriousness of the problem.
Standard & Poors rating agency said it was “a difficult but manageable situation” for the banks.
Rating agency Fitch said last week that the problem would be mitigated by progress made by major Greek banks in reducing their balance sheet risk through securitizations through the Hercules Asset Protection Scheme (HAPS).
To facilitate a soft landing, Piraeus Bank is offering borrowers whose loan deferrals have ended an 18-month period to return to normal service by gradually increasing payments.
Under the plan, these loans can remain performing, with borrowers paying only half of their normal loan payment this year and 75% in the first half of next year. The duration of the loan is thereby lengthened.
In this way, borrowers in Piraeus will return to normal payments in the second half of 2022. Eurobank and Alpha Bank do not opt for such a horizontal approach but also welcome borrowers on a case-by-case basis.
“We facilitate borrowers whose deferral period has ended one by one and offer easier repayments if necessary,” said Iakovos Giannaklis, Eurobank’s retail manager. “A good part, however, resumed normal payments.”
Likewise, Alpha Bank treats each borrower facing payment difficulties separately, but also offers similar phased repayment plans by extending the loan term, a bank official said.
Greek banks have made progress in reducing the risks associated with bad loans accumulated during the country’s debt crisis through write-downs, restructurings and securitizations, all participating in the government’s “Hercules” bad debt reduction program.
Although non-performing loans were reduced by around 59 billion euros from a peak of 106 billion in March 2016, banks’ overall NPL ratio of 36% at end-September remains well above the average for the euro area by 2.9%.
Greece’s economy is expected to have shrunk by around 10% last year, hit by restrictions aimed at stemming the spread of infections and a drop in tourism.
$ 1 = 0.8274 euros Report by George Georgiopoulos. Editing by Jane Merriman