Greek banks have made quite a good progress in cleaning up their balance sheets from non–performing loans (NPLs), but more needs to be done.
“This is not the time to wait and see“ is the message coming from Frankfurt, via Andrea Enria’s interview to the Greek national TV, ERT.
The Chair of the Supervisory Board of the ECB acknowledges that there has been a decrease in non-performing loans in Greece of around €25 billion, from December 2018 to the third quarter of this year. Part of the success is due to the Hercules Asset Protection Scheme.
Still, he points out that NPLs in Greece are more than 1.000 times bigger in size than the average in Eurozone.
“It is 36.7% in Greece, compared with below 3% in the euro area as a whole, which means that additional efforts need to be made” Enria says.
He warns the COVID-19 crisis should not halt efforts to clean up balance sheets. On the contrary:
“With COVID-19 possibly driving a further deterioration of asset quality going forward these efforts are now more necessary than before” he stresses. “Banks have to seriously consider, in my view, further accelerating the clean-up of their balance sheets. This is not the time to wait and see. We know that the heavy recession triggered by COVID-19 will lead to a further deterioration of asset quality and these banks need to still be able to support the economy. They need to treat this issue as a matter of urgency.”
Enria believes that a number of reforms could speed up the process:
- the implementation of the new insolvency code
- the strengthening of the e-auctions framework for non-performing loans
- the elimination the backlog of personal insolvency cases which are pending before the courts.
Without European deposit insurance, the banking union remains incomplete and segmented and we cannot reap its benefits, Supervisory Board Chair Andrea Enria tells @ERTsocial. He also talks about the need for a bad bank and about Brexit https://t.co/9HBxDLhrPT pic.twitter.com/JHBGIp3Mqq
— European Central Bank (@ecb) November 28, 2020
Talking about the overall toll the pandemic is taking on European banks, A. Enria advocated the idea of creating a European bad bank for NPLs.
“In general, asset management companies are tools which, in the past, have been able to free banks’ balance sheets from bad loans and enabled them to support households, small businesses and corporates. I’m convinced that such an initiative should be coordinated at the European level to be effective, because otherwise there is a risk that banks in one country could benefit from better conditions than banks in another country. This would be against the principles of the banking union. “ he said.
Two sides oppose the idea of a European bad bank:
– the banks themselves that, according to Enria, have “a rosier picture of the future”
– certain European governments that fear “mutualisation of losses” .
Enria emphased the need to introduce the “third leg” of the banking union: the European deposit insurance scheme.