Greek banks met or exceeded the targets they set for reducing Non-Performing Exposures (NPEs), including loans past due more than 90 days (Non Performing Loans – NPLs) at the end of 2016, according to a Bank of Greece report published on Wednesday.
Based on end-December 2016 data cited by the central bank, the stock of NPEs is 104.8 billion euros, or one billion lower than the targeted amount. In a similar vein, the stock of NPLs is 75.9 billion euros or 0.5 billion euros lower than the targeted amount.
Regarding the two key monitoring indicators (NPE and NPL ratios), both of them outperformed with the actual NPE ratio standing at 50.0 pct compared to targeted level of 50.5 pct and the NPL ratio at 36.2 pct compared to the targeted level of 36.4 pct.
The outperformance (in targets and monitoring indicators) also stands for the majority of metrics for the three main asset classes, i.e. mortgages, consumer and business loans, with the marginal exception of the NPE target for the mortgage portfolio.
The central banksaid it was the first quarter since the beginning of the crisis recording a reduction in the NPE ratio.
The report also noted, however, that the NPE ratio remains high across most asset classes. For end-December 2016 the NPE ratio is 41.5 pct for residential, 54.0 pct for consumer and 44.6 pct for the business portfolio.
Overall, the central bank report noted a deceleration of the default rate in the last quarter of the year but also that this still exceeded the cure rate. The gap between the default and cure rates was mainly driven by the business portfolio, it said. On the other hand, a high cure rate has been reported in the mortgage book, which exceeds the default rate. The outflow of NPEs coming from collections, liquidations and sales of loans was rather limited. Instead, the key driver for the reduction in the stock of NPEs over the last quarter of the year has been the loan write-offs, especially in the business and consumer portfolios.
Based on the binding programme submitted by banks, NPEs as a percentage of total exposure will gradually decelerate and reach 33.9 pct in 2019. For the same period the reduction in NPLs is set at 49 pct, thus from 78.3 billion euros in June 2016 to 40.2 billion euros in 2019. The relevant NPL ratio is targeted to decrease in the same period from 37 pct to 20 pct.
According to the banks’ submissions, the largest part of the reduction will be back loaded and take effect in 2018 and 2019. The reduction will be mainly driven by curing of loans and write-offs and to a lesser extent by liquidations, collections and sales of loans. The reduction of balances will be mitigated by the inflows of new NPEs, which are expected to remain quite significant throughout 2017.