Bad-bank idea gains ground

Consensus has been growing among analysts and economists about the need for the creation of a bank to take on the nonperforming loans of Greek lenders (a “bad bank”).

This growing convergence is due to the seriously negative effects the health crisis is expected to have on the assets, the capital and the profits of local banks, preventing the sector from supporting the recovery of the economy.

Even with the full operation of the Hercules asset protection scheme, the completion of the securitizations and the plans for loan sales, the NPL index will not drop below 25% of all loans, according to Bank of Greece projections (without even including the expected rise in bad loans from the new crisis). Therefore, a further solution that would help the sector improve its assets and capital and mainly face the major challenge of the high share of deferred tax assets in banks’ capital is seen as welcome, if not necessary.

Alex Boulougouris, co-head of research at Wood & Company, tells Kathimerini that participation in a bad bank would be voluntary, so any instrument local lenders can use to slash their NPLs faster would constitute good news for the sector, even if it entails additional pressure on capital.

The Organization for Economic Cooperation and Development (OECD) said in its annual report on Greece this week that the government must urgently develop and apply an integrated solution for tackling the deferred tax credits in banks’ balances and of the NPLs remaining in the system. The BoG proposal has the advantage of tackling both problems in banks’ report at once, so it should be investigated further, the OECD report argued.

HSBC believes the issue of a bad bank should become part of the government’s plans, as after the real economy, banks should be the priority for Athens and Hercules’ application has shown delays.

The creation of a bad bank is also gaining ground at a European level, with Moody’s arguing that such a development would be credit positive for European banks.