Filenews 11 February 2024 - by Eleftheria Paizanou
Banks have some clues about strategic defaulters but don't have the tools to examine all borrowers' assets, said Michalis Kammas, director general of the Association of Greek Banks.
In an interview with "F", he indicates that the ability of banks to know the real financial position of borrowers or potential borrowers is limited.
At the same time, he notes that in order to resolve this issue, political will is needed, so that it is regulated by law and banks have a full picture of the assets of their customers who have bad loans and are interested in joining the various government plans. In addition, the Director General of the Association stresses that it is time to open a meaningful dialogue on the issue.
Regarding the approval of the new legal framework for foreclosures, Kammas states that the changes can provide a way out for borrowers and lenders. At the same time, he underlines that, despite the increases in lending rates, bad loans have not increased, pointing out that last year loan renegotiations more than doubled, as they concerned loans totalling €4.5 billion. Finally, he refers to the first interest rate cuts, which are expected to occur in the summer.
The new NPL framework
Do you think that the new legal framework on foreclosures will ultimately help address the problem of non-performing loans? Do you think the framework between creditors and borrowers is balanced?
Look, for years there have been efforts to make the legal framework for the management of non-performing loans (NPLs) work properly and clearly assess it as fair and effective. With these elements many attempts have been made, some in the right direction and others that created additional problems or only prolonged the problem.
Within this framework, during the last decade serious legislative regulations have been made, to the point of reforms, I can say, but various plans and tools have also been implemented, such as Estia and recently the Rent for Instalment, the Insolvency Framework and the operation of the Body for the Extrajudicial Settlement of Financial Disputes. We believe that the recent changes can give a way out to borrowers and, of course, also give a way out to lenders, who in fact for years, for some loans, have had extremely limited room for manoeuvre.
It should be noted, however, that banks with a substantial social approach have dealt with hundreds of borrowers, giving unlimited time and shown the greatest flexibility to help them towards becoming viable and not losing their primary residence.
The fact that creditors had acquiesced to the political leadership's call for a voluntary freeze on foreclosures is believed by some to have given the wrong signals to borrowers. Always, as creditors, you argue that suspending auctions risks affecting the banking system. When this policy was made or implemented by the creditors, was there no problem?
As a banking sector, we are particularly sensitive to interventions in the legal framework concerning the operation of the sector and especially foreclosures, because it directly affects its financial data. It is our firm position that suspensions of foreclosures not only do not solve the problem but prolong it.
Nevertheless, we have credited the State, i.e. the Government and Parliament, with a sincere willingness to find effective and substantial solutions to the NPL problem. We would like to believe that we have been assessed in the same mood in terms of the political system, and that is why we have ended up strengthening the legal framework, with solutions that are in the right direction, helping borrowers, without endangering financial stability.
High private debt
Sales of non-performing loans reduced banks' exposure to such loans. Has NPL reduction not minimised risks for the banking sector?
Clearly, this is a positive move on the part of banks, helping them to significantly improve their balance sheets and focus on their core banking operations, which has a substantial and positive impact on the economy.
Nevertheless, it should be noted that private debt in our country remains high and banks may have significantly reduced NPLs, but the problem remains in the economy and in essence constitutes an obstacle to the country's growth prospects, creates social problems and limits spending by businesses and households towards healthy consumption. new investment projects and job creation.
Further effort and collective actions are needed to address the NPL problem. It should be noted, however, that substantial progress has been recorded in recent years, which must be credited both to banks and credit acquiring companies, as well as to the borrowers themselves, who sought every possible option and, of course, to the State, which implemented social policy measures and promoted legislation towards resolving distortions.
Some don't want to cooperate
What is the reason for the unsatisfactory utilization of the government plans implemented, e.g. Estia Scheme, Rent for Instalment, etc.? Do you agree with the position that the plans failed because some of the borrowers did not want to disclose their incomes and assets, i.e. they are strategic borrowers?
First of all, let me tell you that I agree with the second part of your question, namely that some borrowers do not want to cooperate in settling their loan obligations, but instead are looking for every possible way to avoid fulfilling their obligations. But I have to tell you that I personally believe that the projects you mention have succeeded! This is because those who really needed them made the necessary procedures, utilized them and even maintained their main residence and at the same time settle their loan debts.
Uncooperative borrowers, and unfortunately there are quite a few in this category, have assets that, however, they are not willing to offer against debts they have.
Of course there are exceptions or problems from the past, but the big picture is exactly what it is about, which in two words is described by the term "strategic defaulters". Adding to this, there is a way to solve this issue as well. All that is needed is legislation and the necessary political will. The solution to the problem is a complete picture of the assets of people who have NPLs and apply for support or inclusion in the state's plans.
In this way, borrowers with NPLs, who have deposits in one bank and in another the non-performing loan, will not take advantage of the situation and will not seek state support when they have resources to settle their obligations. In addition, this could be implemented at many levels, even for companies that receive government contracts and so on.
Why can't banks identify strategic defaulters? Who is responsible for locating them?
Banks have some clues as to who strategic defaulters are, but they don't have the tools to know the wealth a borrower, household or business has. The only information that each bank has before it for its customers is the deposits in the same bank and not in any other, the income that the borrower himself declares and whether he holds loans or if he had previously had a loan in another bank. As a result, the ability of each bank to know the financial position of a potential borrower, beyond the information it can request, is extremely limited.
As I said, this is an issue that concerns banks and we believe that the issue should be seriously considered especially for those who have NPLs and seek state assistance. After many years and sometimes exhaustive discussions on various banking issues and legislation, I believe the time has come for a substantive debate on this issue.
Summer the first interest rate cut, but no return to zeros
What is burning citizens are the borrowing rates, which due to the ECB's decisions have hit red. When are banks expected to start reducing them? How long will it take for interest rates to return to their pre-monetary decisions?
First of all, we should reiterate that monetary policy decisions relating to the setting of reference rates are taken by the central banks and therefore in our case by the European Central Bank. What emerges from recent statements by various officials, always on the basis of current developments and data, mainly in relation to inflation and the course of the European economy, is that the first cut in interest rates by the ECB is expected to be recorded from the summer.
At the same time, it should be noted that interest rates are not expected to fall to such an extent that they reach zero limits in the coming years. This was the other end of monetary policy, which was aimed at stimulating Europe's economic course, due to the various crises we have gone through in recent years.
NPLs did not increase
Due to interest rate increases, there are cases of citizens whose instalment has doubled, resulting in many finding it difficult to pay their instalments. Have increases in lending rates led to new non-performing loans?
There is no increase in non-performing loans and this is attributed to two very key factors. The first concerns the quality of the loan portfolio, which now basically concerns loans that have been given on the basis of the borrowers' ability to repay and not on the value of the collateral. The second, important factor, has to do with the great effort that has been made and continues to be implemented for renegotiation of loans, in order to continue to be repaid without problems and therefore for borrowers to remain on a sustainable trajectory in relation to their loan agreements.
Do borrowers continue to turn to banks and ask for renegotiations and loan reviews? Are there any complaints from those affected that banks are blocking loan reviews?
The figures, I believe, answer your question and these figures are particularly important. More specifically, I note that in 2023 there have been renegotiations of loans worth €4.5 billion, a number more than double compared to 2022, when the renegotiations concerned loans worth just under €2 billion. In recent years, banks have proven their readiness, determination and willingness to support and assist society and businesses, having experience and knowledge both to handle difficult cases and, more broadly, to maintain and consolidate a quality loan portfolio.
Ukraine, Gaza and Houthi rebels
What challenges is the banking sector facing this year?
The main challenges for the sector concern instability from geopolitical developments, notably the wars in Ukraine and Gaza, but also the Houthi attacks in the Red Sea. Due to these geopolitical developments, the course of the economy and banks will be determined, to a large extent, by inflation, energy costs and supply chain normality.
At the same time, a big challenge for the banking sector is the twin objectives of the green and digital transitions. Another, perhaps not so obvious to the general public, challenge has to do with information security and cybersecurity, since cyberattacks are now part of the daily lives of large organizations such as banks. In conclusion, I believe that through collectivity and calm dialogue away from populist approaches, we can – as a country – face any challenge.
