Theodore Mitrakos: Distressed loans in the Greek banking system -
restructuring portfolios, reviving enterprises
Address by Mr Theodore Mitrakos, Deputy Governor of the Bank of Greece, at the workshop
co-organised by the Bank of Greece and EBRD on "Distressed loans in the Greek banking
system - restructuring portfolios, reviving enterprises", Athens, 10 March 2016.
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Ladies and gentlemen, dear guests,
It is a great pleasure for me to welcome here at the Bank of Greece Mr. Nick Tesseyman,
Managing Director Financial Institutions of the European Bank for Reconstruction and
Development (EBRD), the distinguished speakers and all the participants in today's workshop,
focusing on the management of non-performing exposures (NPEs).
Let me take this opportunity to welcome the activity of the EBRD in Greece. The EBRD
Governors, following a request of the Greek authorities, voted in February 2015 with
overwhelming majority for the Bank to invest in Greece until the end of 2020. The Bank's
investments, backed by technical assistance and policy dialogue, are intended to strengthen
progress in the reform of Greece's economy and contribute to its recovery. In this vein, as you
probably know, the EBRD Representative Office in Athens was recently established. Greece
will benefit greatly from the expertise and the finance that the EBRD can bring to projects
designed to contribute to sustainable growth and encourage trade. The EBRD has already
participated in the recapitalisation of the four significant Greek banks in late 2015, which shows
its confidence in the prospects of the entire Greek banking sector, and has invested overall
around €300 million in Greece. Moreover, as of early March the EBRD is supporting the
expansion of international trade with a facility to National Bank of Greece under the EBRD's
Trade Facilitation Programme (TFP). Through the programme, the EBRD provides guarantees
to international confirming banks and short-term loans to selected banks and factoring
companies for on-lending to local exporters, importers and distributors. The facility will help
National Bank of Greece to scale up its trade finance activities, despite the financial market
conditions, and reaffirm itself as a prime trade partner, supporting trade activities of exporters,
importers and distributors of imported goods in Greece. It is anticipated that similar agreements
will be signed with other Greek banks in the near future. More generally, the EBRD's
commitment to the country sends a strong signal to private sector investors that Greece is
serious about reform and rebalancing its economy. I would like therefore to thank Ms. Sabina
Dziurman, EBRD Director for Greece and Cyprus, for her contribution so far, as well as for
putting forward the idea of holding a joint workshop on non-performing exposures. Ladies and
gentlemen,
The Bank of Greece, as you all know, has taken a series of initiatives to promote more rigorous
and efficient management of non-performing exposures. It has also underpinned government
efforts towards shaping and implementing a national NPL strategy.
In this regard, let me very briefly mention some of these Bank of Greece initiatives:
• The issuance of the Executive Committee Act 42/2014 on the supervisory framework
regarding the NPE management by commercial and cooperative banks.
• The activation of the Code of Conduct, which provides guidelines regarding the
interaction of credit and other financial institutions with borrowers in arrears.
• The conduct of several on-site inspections to monitor banks' progress in implementing
the supervisory framework.
• The conduct, with the support of an external consultant, of a study on NPL
segmentation and the preparedness and capacity of banks to deal with each NPL
segment in a rigorous manner.
• The issuance of the Executive Committee Act 82/2016 (under publication) regarding
the framework for the licensing and operation of NPL servicing and acquiring firms.
Last but not least, the Bank of Greece, in cooperation with the ECB Banking Supervision and
the commercial and cooperative banks, is in the process of agreeing a set of operational
targets for NPEs. Meanwhile, the Bank of Greece is setting up a Coordination Office to support
the monitoring of the implementation of the national NPL strategy.
• Against this background, in today's workshop we will have the opportunity to
extensively discuss three main topics:
• Solutions for borrowers with exposure to multiple banks. The bulk of distressed
large corporate borrowers have exposures to multiple banks rendering necessary a
coordinated approach among creditors to agree comprehensive and sustainable
solutions in a reasonable timeframe. The Hellenic Financial Stability Fund (HFSF) has
recently launched a study regarding this pertinent issue of "common borrowers".
• Development of a secondary market for NPL servicing and sales. The recent Law
4354/2015 laid down the framework for the development of a secondary market for
NPL servicing and sales. There will be two panels covering essential aspects in the
process of setting up the local infrastructure for NPL servicing and sales respectively.
• The banks' internal workout: managing distressed SMEs. SMEs are the
backbone of the Greek economy. The shift of banks towards long-term forbearance
measures coupled with the restructuring of viable businesses with appropriate
changes in their structure, business model and, if necessary, corporate governance
would help stimulate an uptick in economic activity and assist the rebalancing of the
Greek economy towards export-oriented sectors. Ladies and gentlemen, The
successful completion of the recapitalization of Greek banks in late 2015 has been a
decisive first step towards safeguarding financial stability and restoring the
intermediation role of banks. The capital adequacy ratio of the Greek banking sector
stands (pro forma) at around 18% and compares favorably with the average for
European Union banks. The next milestones for the Greek banking sector relate to a
return to profitability, a return of deposits through the restoration of depositors'
confidence and, more importantly, the supply of credit for working capital and
investment. Undoubtedly, these goals are closely linked to the politically and socially
sensitive issue of tackling non-performing exposures, which poses a real challenge
for us all. As of September 2015, non-performing exposures stood at €107 billion,
representing 43.6% of total exposures. Hence, the more effective management of
non-performing exposures, avoiding the pitfalls of regulatory forbearance or
overenforcement alike, will bring about multiple benefits for banks, households,
businesses and the society at large. In the process, it will unlock funding to the real
economy, bolstering investment and employment. This in turn will enable the Greek
banking sector to protect and strengthen the productive fabric of the country, while
concurrently enhancing its social role. I am confident that today's workshop will show
the significant progress that has already been made regarding the development of an
appropriate institutional and supervisory framework for a more effective NPE
management. Moreover, it will help to identify the appropriate tools and approaches
to this end. I look forward to an exciting discussion and a very fruitful exchange of
views. The overwhelming interest of market participants, from Greece and abroad, to
join this workshop is, I think, a key ingredient for its success.
Thank you again for being here today.