Greece's Piraeus and NBG to set up 'bad banks' as bad loans soar

Thu Oct 3, 2013 6:07am EDT
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By Laura Noonan and George Georgiopoulos

LONDON/ATHENS (Reuters) - Greece's biggest lenders, National Bank of Greece (NBGr.AT: Quote) and Piraeus (BOPr.AT: Quote) plan to put their troubled loans into separate "bad banks" in order to restore consumers' confidence in the rest of their business, the banks' executives told Reuters.

National Bank of Greece (NBG) deputy chief executive Petros Christodoulou said he was also talking to private investors about a joint venture that would involve them taking on a minority stake in some small and mid-sized business loans.

Bad banks have been set up by several European lenders in order to improve management of unpaid loans - often selling them on to funds specializing in distressed investments - and thus show the relative health of the rest of their business. The UK government is currently considering whether to introduce this kind of split at Royal Bank of Scotland (RBS.L: Quote), still fragile despite being bailed out when the financial crisis brought it to the brink of failure.

Unpaid loans are a major headache for banks in Greece, where the economy has shrunk 25 percent over six consecutive years of recession. The banks are still recovering from 27 billion euros ($36.69 billion) of losses brought about by the country's unprecedented sovereign debt restructuring in 2010.

By the end of June, bad loans constituted 29 percent of Greece's four largest banks' combined 260 billion-euros loan books, more than three times the 7.15 percent average the International Monetary Fund recorded for the eurozone in 2012.

Christodoulou said NBG, which has the lowest rate of non performing loans (NPLs) at 24.4 percent of its total book, was looking to set up a bad bank "in the next two months" and was in the process of hiring advisers to help with the project.

"You need to have clear focus, clear identity of the NPLs, clear management of the NPLs, clear responsibility structure of who's responsible for what," said Christodoulou. "You need a different set of skills for NPLs."

The volume of assets to be transferred over has not yet been set. "We're in the design phase," he said, adding that the bad bank should be operationally separate by the end of 2013.   Continued...

A surveillance camera is seen over the logo of Piraeus Bank on an ATM machine outside one of its branches in Bucharest April 18, 2013. REUTERS/Bogdan Cristel