yannis stournaras : the greek experience in dealing with nonperforming loans and the challenges ahead for eu banks speech by mr yannis stournaras, governor of the bank of greece, at the nonperforming loan ( npl ) meeting 2024 " step forward ", organised by banca ifis, cernobbio, 27 september 2024. * * * i would like to thank the chairman of banca ifis for inviting me in this very interesting forum. in my short intervention today, i will share with you our experience in dealing with npls in greece and i will then outline the key challenges ahead for the banking system in the euro area. part a : dealing with npls in greece as you all know, greece suffered greatly throughout the previous decade from an acute economic crisis that reduced domestic gdp by ~ 25 %. we experienced an economic contraction that is equivalent to some of the worse post - war crisis episodes in global economic history. inevitably, the economic recession took a toll on the asset quality of all greek lenders. within just a few years, about half of the banks'loan book was non - performing. npls became the largest asset class in greece - for the small and medium - sized enterprises ( smes ) and the small business and professionals ( sbps ), which are the backbone of the greek economy, about two thirds of the obligors were in default at the peak of the crisis. today, the picture is completely different, as banks have managed to reduce their npls ratio to just north of 5 % ( which is closer to the eu average ) through a combination of measures, notably using an asset protection scheme called'hercules'which is similar to the italian gacs. if i can briefly outline the key takeaways from our experience in dealing with npls over the past decade, these are the following : first, it is important to understand that dealing with npls in a systemic crisis requires a multi - faceted strategy that includes legal, operational, and financial aspects. he timely recognition of the problem and the need to take policy actions at an early stage are of utmost importance. having said this, i fully acknowledge the difficulty to address legacy loans in a recessionary environment. npl reduction is more feasible in a growing economy ( e. g. improving financial position of households and non - financial corporates, increasing collateral value, etc. ). strengthening the legal framework for bankruptcy and insol

commercial real estate segment. a fall in real estate prices could expose some property developers to losses and consequently impact the cost of credit risk for some european lenders. several new risks have recently emerged in our risks heatmap, such as the climate change risk and the risks stemming from cyber - attacks. the latter is closely linked to the rising geopolitical risk. concluding, despite the progress so far, there is no room for complacency. as risks to financial stability remain, supervisors should ensure that financial institutions are cautious in their business decisions and preserve ample capital and liquidity buffers, while upholding top governance standards. macroprudential supervisors should also preserve capital buffers with the aim to increase resilience in the system. finally, we need to revamp our crisis management framework and complete the banking union. the adoption of a common european deposit insurance scheme ( edis ) at the level of the banking union is necessary to strengthen depositors'confidence, especially in case of cross - border turmoil and systemic crisis. the completion of the banking union with the adoption of a common framework for crisis management and deposit insurance ( cmdi ) will facilitate the integration of the, so far, fragmented banking sector in the european union along the lines suggested by the draghi report and achieve level playing field in european banking regulation and resolution. thank you. 1 https : / / www. eba. europa. eu / risk - analysis - and - data / risk - dashboard 4 / 4 bis - central bankers'speeches