Millions of unprocessed non-performing loans from the last decade’s debt crisis continue to slow Greece’s economic growth. An International Monetary Fund (IMF) official told Reuters that these loans are also impeding the rebound for families and businesses still locked out of lending markets. The IMF estimates that nearly three million non-performing loans are impacting 2.4 million people. Charles Cohen, an IMF advisor specialising in financial markets, noted that the sheer volume has overwhelmed the Greek lending system. Without servicing the old loans, many ordinary Greeks will be unable to borrow further.
Cohen, who is the mission chief for the IMF’s Greek FSAP, an assessment of the country’s financial sector, stated that the system has been overwhelmed and requires reforms. Greece’s banking sector underwent a bailout during the 2009-2018 crisis after incurring catastrophic losses on government bonds and a surge in defaults. Since then, the economy has rebounded, banks have been re-privatised and returned to profitability, and the country is paying off its bailout loans ahead of schedule. Despite these improvements, absolute recovery is being slowed as ordinary Greeks, who suffered wage and pension cuts during years of austerity, remain locked out of the lending system.
Cohen emphasised the importance of repairing household balance sheets to facilitate the average Greek’s active participation in the mortgage and small business loan markets. The non-performing loans (NPL) reached almost 50% of the banks’ loan portfolios during the crisis. In 2019, Greece established a secondary bad loan market and an asset protection scheme, facilitating the securitisation and transfer of approximately 60 billion euros of non-performing loans to servicers. However, the system has not responded as swiftly as lenders like the IMF would prefer, with court disputes between banks, servicers, and mortgage borrowers often taking years to resolve.
The slow resolution is partially due to overwhelmed court dockets and a lack of specialised judges. Furthermore, many small businesses have remained outside the banking system since the financial crisis, leading banks to concentrate their credit on a few large Greek corporates, thus making them more vulnerable to international turbulence. Cohen highlighted the critical need to re-diversify bank lending into these sectors, acknowledging that it is not an easy task.
