In the coming months, banks will gradually find themselves at the epicenter of the crisis and the impact that rising inflation will have on households and businesses, as the atmosphere of precision strengthens and, combined with rising interest rates, the impact on disposable income is expected to be seen.

Despite the fact that the results of the first half of the year show that the process of reducing bad loans is not weakening and that to date the crisis has not created problems in servicing the obligations that the population and businesses have, the fear of creating a new generation of bad loans, even on a smaller scale, has not been resolved. The situation is being closely monitored by the Bank of Greece, whose sources indicate that the prevention of new problem loans is also necessary because banks have gradually exhausted their capital cushions, as a result of which the resistance of the system to a possible new shock to the economy due to the current energy crisis and its impact on businesses and households to cause concern.

Second quarter data released by the four systemically important banks show a further decline in non-performing loans to €11.2 billion, with a parallel decline in the non-performing loan index (NPEs) to single digits. Based on the same data, banks recorded a negative inflow of new problem loans, the main reasons for which are:

• Continuation of the policy of sales and securitization of loans.

In the first half of the year, current but slightly overdue loans rose by 1.6 billion to a total of 5.1 billion euros.

• The positive impact of the programs “Bridge 1” and “Bridge 2”, which are accompanied by disincentive measures to prevent the deprivation of the provided state subsidy.

The Bridge 1 program to subsidize loans with mortgages for first homes started exactly two years ago, at the height of the pandemic crisis, and included 151,625 home mortgage loans for 73,233 beneficiaries, while the Bridge 2 program began about a year later and covered 17 511 business loans 9,908 beneficiaries who were also affected by the crisis Even though the state subsidy for most of these loans has ended, these debts remain in “intensive” as those beneficiaries who joined the two programs will have to repay the installment on their loans in the normal course for a period of 12 to 18 months, so that they are not required to repay government support Considering that the beneficiaries of “Bridge 1” and “2” had the right to gradually join the two programs, after the end of the suspension programs payments, i.e. moratoria, which were applied by banks at that time, exit from the programs is also carried out gradually from the beginning of the year, and the binding period , so as not to lose the subsidy, will begin to expire in the coming months and at the beginning of 2023. This condition, set by the Treasury Department as a key incentive to boost cultural payments for those who benefited from the state subsidy, has prevented defaults so far, but the question is whether these loans, which were informed in most of them, will continue to be serviced normally even after end of binding period.

Banks remain closely monitoring the behavior of these loans, while the Bank of Greece is also vigilant, whose sources see some early warning signs behind the de-escalation of NPS holdings, pointing to a reversal in the trend of previous months and a return to a net inflow of new NPLs of around 300 million euros throughout the banking system.

The group focuses on the growth of loans that are aware, that is, not yet classified as red, but show a slight delinquency (early delinquency), which increased by 1.6 billion euros in the first half of the year, adding to a total of 5.1 billion euros. This increase is reportedly due to business loans and could be a sign of deteriorating asset quality in the next quarter, as noted, while also raising concerns that, unlike previous quarters, when new NPL inflows were almost split into inflows from informed and informed loans, which have been adjusted, now the influx of new defaults comes mainly from informed loans.

It is no coincidence that the management of the four systemically important banks, despite the expression of confidence they exuded during the announcement of the results of the second quarter, did not fail to emphasize that they “closely monitor the evolution of problem loans.” and plan additional reserves of €400 million each before the end of the year to cope with possible inflows in the coming months.