Bad Loans Mountain Threatens to Re-Kindle Greek Crisis

FILE - In this file photo dated Friday, June 22, 2018, people walk past the Bank of Greece headquarters as workers repair the facade of the building in central Athens. (AP Photo/Petros Giannakouris, FILE)

ATHENS – There could be a relapse of Greece’s slow recovery from a crushing 8 ½ economic austerity if banks buried under a mountain of bad loans making up 40 percent of their portfolio don’t get of them and get their balance sheets corrected.

That was the assessment by the financial news agency Bloomberg which wrote that, crippled banks remain one of the biggest hurdles” to Greece’s economic recovery, noting those loans make up almost half of total lending.

“There are even worries that the country may face yet another financial crisis if it can’t dislodge its lenders from their downward spiral,” the news agency claimed and noted the plan presented by the Bank of Greece to help banks speed up efforts to reduce them.

Bank shares are falling and foreign investors are being put off by the bad loans problem, as Greece is seeking to eventually return to the markets with the Aug. 20 end of three international bailouts of 326 billion euros ($369.77 billion).

The country’s four biggest banks have been recapitalized three times with 50 billion euros ($56.71 billion) from the rescue packages but are still being dragged down by the bad loans with people unable to pay because of big pay cuts, tax hikes, slashed pensions and worker firings.

Among the bad loans is some 250 million euros ($283.56 billion) owed by the former ruling New Democracy Conservatives and their former partner, the now-defunct PASOK Socialists who aren’t being chased as loan officers who approved the loans without enough collateral were given immunity from prosecution.

The government is said to be weighing a plan, possibly including a state guarantee, said Bloomberg with other ideas including an Asset Protection Scheme and Special Purpose Vehicles into which bad loans would be unloaded with state guarantees.

The Bank of Greece proposed a more convoluted plan to transfer of part of the banks’ deferred tax credits to let banks get rid of half of their 40 billion euros ($45.37 billion) in bad loans.