“ recent developments in tackling the greek nonperforming loans problem ” keynote speech by professor john ( iannis ) mourmouras senior deputy governor bank of greece former deputy finance minister at imn ’ s 2nd annual investors ’ conference on greek & cypriot npls athens, 8 february 2019 1. introduction good morning, ladies and gentlemen, it is my pleasure to deliver the keynote speech at the second annual investors ’ conference on greek and cypriot npls, a very welcome initiative that draws the attention of all the relevant stakeholders on the npl issue, of great interest to the local regulator too, which justifies my presence here in front of you. i would like to start by thanking the organisers, the information management network and jade friedensohn, for the kind invitation, and all of you for being here so early in the morning. because of the criticality and the multidimensional aspects of the issue and a sense of urgency, some have called it the achilles ’ heel of the greek banking system ; others the elephant in the room. i personally call it a problem, a problem that can be resolved and i see that the time has come. over the last decade, the european union and its member states ` 1 have worked hard to reduce risk in the banking sector. indeed, the european banks average cet1 ratios are 15 %, the highest level since 2014, while according to the latest ecb ’ s stress tests results published last monday, all banks improved capital basis with higher capital buffers than in 2016. despite that, according to the recent ssm risk map for 2019, npls continue to pose risks to economic growth and financial stability with further efforts necessary to ensure that the npl issue in the euro area is adequately addressed, while the ongoing search for yield, due to very low and negative interest rates, increases the potential for a buildup of future npls ( chart 1 ). chart 1. ssm risk map for 2019 as you can see from the chart above, npls rank higher than cybercrime and it disruptions, and are second only to geopolitical uncertainties both in terms of risk impact and risk probability. the average npl ratio in the eu stands at 3. 4 % and this compares with average npl ratios of 1. 3 % and 1. 5 % in the united states and japan, respectively. in what follows, i would like to highlight the european dimension to the npl issue including the current situation

( mezzanine ). the scheme will be voluntary and will be managed exclusively by private investors ( servicing companies for loans and credits ) and apparently there will be an asset class separation for each transaction and management operation ( business, housing, consumer, etc. ). ` 13 turning now to the hfsf ’ s proposal : main characteristics it is based on the italian solution, the so - called gacs scheme, introduced in the beginning of 2016, which was conceived to help the country ’ s banks offload their bad loans. at the heart of the gacs programme is a state guarantee that protects buyers of the safest - or most senior - tranche in the securitisation. the guarantee will be available only after a ) the senior tranche gets a certain rating by rating agencies ( possibly in the area of bb ) and b ) at least ( 50 % + ) of the junior tranche is sold to private investors. the scheme will be voluntary again. each participating bank will sell selected, relatively homogeneous portfolios of npls to the spv, which will issue the asset - backed security notes. after all, guarantee certificates are not something new in greece, but have been used extensively by the banking sector since 2012 for central banking liquidity provision purposes ( e. g. mros and ela ), the socalled gggbbs, which amounted to around €30 billion. these guarantee certificates can be considered as a sort of credit enhancement device with the following advantages : they do not put any capital pressure upon banks, they do not mix complicated tax, legal and regulatory issues. with all the above firepower initiatives put in place, plus the existing toolkit of liquidation, restructuring and outright sales, the new ambitious target lower than 20 % npe ratio for greek banks within the next three years is within reach. ` 14 epilogue ladies and gentlemen, in closing, i would say the following. being a macroeconomist by training, i can see a macro dimension in a drastic solution of the npes problem : to me, this is a unique opportunity, • not only for restructuring business bad debt, but also rebalancing the greek economy towards export - oriented sectors, while contributing to long - term growth. • for reducing financial risks of the greek banking sector, restoring their profitability and improving their internal capital generation capacity, and • increasing loan supply to healthy and productive enterprises and enabling banks to focus on the new technological challenges ahead, including fintech