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How to End Greece’s Banking Nightmare

Ferdinando Giugliano, (2018), “How to End Greece’s Banking Nightmare”, Bloomberg Opinion, 13 Δεκεμβρίου

If a country has a problem with its banks, the thing to do is to come up with a strategy and execute it swiftly. The trouble with Greece is that it has too many plans — and is taking too long to choose between them.

The Greek banking system is saddled with a very large number of non-performing loans, a legacy of protracted recession. Nearly half of all loans have gone sour, according to Bank of Greece data, and that’s only marginally less bad than the nadir of a year and a half ago.

The quality of the banks’ capital is also dubious. More than 50 percent of the combined capital of the country’s four biggest lenders is made up of deferred tax assets (discounts on future tax bills accumulated during years of losses). They’re struggling with profitability, too: Return on equity is negative, as banks struggle with exceedingly high costs and a still depressed economy.

European supervisors seem to have turned a blind eye to what’s going on. Last spring, the European Central Bank cleared Greece’s four largest banks in a tailored stress test. The ECB’s Single Supervisory Mechanism — the region’s banking watchdog — has come up with a series of benchmarks for the reduction of bad loans, which the Greek lenders are broadly meeting. But investors are skeptical. Since the stress test’s results were released, an index of the country’s bank stocks has lost almost half of its value.

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