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Troika to scrutinise foreclosures implementation

08/10/2015 10:03
Troika is having second thoughts regarding the laws of foreclosures and insolvency, expressing concern about the results of their implementation until now.

The implementation and content of those laws will be put again under the microscope of troika, which will return in a few weeks for the review of the program.

In the context of the new review, which is expected to start in early November, the focus will be on the bill on the sale of loans, which is the new tool to be created so that banks fix their balance sheets.

Information from Brussels suggest that creditors will undertake a comprehensive assessment of the implementation of the laws on foreclosures and the insolvency framework.

Evidence available to the international lenders, regarding the implementation of these laws, are not encouraging.

They have the impression that there is a high difficulty in terms of accelerating the restructuring of loans, estimating that non-performing loans continue to be a drag to the banking system and by extension to the economy.

This is also reflected in the latest data which show that since April, nonperforming loans have increased to 47% of total loans.

Of the total NPLs, which amount to € 27,4 bn, only a quarter have gone through a restructuring process.

The effect of new laws on the restructuring processes is little so far: The percentage of restructured loans increased just by two points, from 23% to 25%.

Finance Minister Haris Georgiades, in his statements on state radio said that the information they get from bankers gives the impression that they are not satisfied either, with the process and management of loans restructuring.

"Neither I am satisfied with the picture as it is a remnant of the previous period of reckless indebtedness" the minister noted.

The Government considers, however, that the problem relates to the use of the tools provided, not to the tools as such.

The minister indicated that banks have institutionalised instruments and have created special departments for the management of loan restructuring.

"I think that with the tools they have in their hands they can handle the whole issue," he said.

International lenders are likely going to deeply examine the procedures applied by banks in relation to the restructuring of loans trying to identify potential problems.

The government has committed to draw up a plan until the end of the year to address any gaps which may exist in the laws for foreclosures and insolvency.

Until then troika hopes that the law on the sale of loans will have passed, giving banks the option to unload a significant part of troubled loans in their books.

Banks have made provisions that they will lose one third of the € 27,4 bn of nonperforming loans. Creditors believe that the coverage of troubled loans with provisions should reach closer to 50% to be comparable to the corresponding index of European banks.

This implies additional provisions of € 4,8 bn by banks.

Banks stress that loans are covered by collaterals.