Greek central bank considers “bad bank” to clean up bad loans



People walk past the headquarters of the National Bank of Greece in central Athens, Greece on February 19, 2017. Photo taken on February 19, 2017. REUTERS / Michalis Karagiannis

ATHENS (Reuters) – Greece’s central bank is considering setting up a “bad bank” to deal with bad debts weighing on its banking sector which are likely to rise following the fallout from COVID-19, said she said Thursday.

The magnitude of the increase in NPLs could not be predicted, he said in a report released twice a year, but said tackling the problem was a priority.

“The Bank of Greece is dealing with a specific proposal for the implementation of a vehicle to comprehensively deal with problematic assets (Asset Management Company – AMC) for Greek banks,” he said.

“Dealing with a large pool of NPLs, which depending on macroeconomic developments will increase, is a priority,” the bank said.

Greece’s central bank governor Yannis Stournaras previously said the country would need additional tools, and a bad bank to contain the burden of non-performing loans could be an option.

The bad debt to total loan ratio stood at 37.3% at the end of March 2020 this year and banks are aiming to bring it below 20% by the end of 2021.

Greek banks already have a tool, the Hercules Asset Protection Scheme (HAPS) which was put in place last year to help them get rid of up to € 30 billion in bad debts.

Similar to the Italian GACS model, the program offloads debt by consolidating bad debts into asset-backed securities that can be sold to investors.

Reporting by Lefteris Papadimas and Michele Kambas; Editing by Toby Chopra


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