New banking measures aimed at tackling nonperforming loans

The Bank of Greece is expected to deliver its latest code of ethics for the sector within the current week, possibly even today, as commercial banks scramble to deal with a mass of nonperforming loans (NPLs).

According to sources, the new code will include a series of measures aimed at lessening the burden on debtors and offering a lifeline to the banking system in the form of interest rate reductions on NPLs, decreased interest rate margins, changes of interest rate type without any penalty charges, loan replacements, as well as payback period extensions.

At present, approximately 35 percent of loans – valued at 75 billion euros in total – are not being serviced. The future of the banking industry, and, by extension, economic activity, greatly depends on how effectively the perilous accumulation of NPLs can be dealt with.

Banks are said to be facing the most trouble from business loans extended to enterprises now struggling to survive. Very few companies that filed for bankruptcy protection from creditors with the aim of restructuring their operations have managed to relaunch successfully through new business models. At best, most companies that find themselves in difficulty are either struggling to remain afloat or sinking into even deeper trouble.

Also, the increased number of NPLs is depriving more robust firms of credit.

Banking officials have underlined that the problems posed by troubled business loans cannot be confronted through universal measures that apply for all, saying that, instead, all cases need to be handled individually.

MPs of junior coalition partner PASOK are scheduled to meet tomorrow with Minister of Development and Competitiveness Nikos Dendias to discuss the challenges faced by the banking sector.

All EU banks will be subject to a new round of stress tests in October. Late last week, market analyst reports said that Greek banks were sturdily positioned.