As Greece struggles to right its economy and get the banking sector healthy, austerity measures have been so brutal that customers owe more than 65 billion euros ($87.66 billion) in loans, credit cards and mortgages they can’t pay – more than twice their 30 billion euros capital base – threatening the viability of the institutions, according to a report by PricewaterhouseCoopers.
The audit found that the share of Non-performing loans (NPLS) has reached 30 percent as nearly one-third of Greeks – including the ruling New Democracy Conservatives of Prime Minister Antonis Samaras and his coalition partner, the PASOK Socialists who owe 250 million euros ($337.5 million – have stopped paying banks what they owe. That’s a jump of five percent from the year before and 12 percent from the end of 2011.
Despite that, Greek banks are reluctant to sell the loans to companies who hound people for repayment because they are being offered such a low price for the value of the unpaid loans and are waiting out the tide.
That has also left the banks in a position where they aren’t lending, stifling growth in the economy by businesses who want to open or expand. The rate on mortgages alone is some 23 percent and certain to go higher as the government moves toward lifting a ban on foreclosures that was instituted to protect homeowners under an avalanche of pay cuts, tax hikes and slashed pensions.
As default rates on mortgages approach 23 percent, the government said it would lift a ban on mortgage foreclosures for homes less than 200,000 euros that expires at the end of the year to help bank balance sheets, but that drew protests among lawmakers in the ruling parties of the country’s coalition government.
The non-performing loans have stifled the ability to restore desperately needed liquidity to a stagnant economy, bank officials said, and coincided with a drop in deposits from 237 billion euros at the end of 2009 to 162 billion in June.
Greek banks have been rocked by a series of blows, losing some 37.7 billion euros when a previous government in 2011 imposed 74 percent losses on investors to write down the country’s debt by $134 billion.
Since then, to keep them solvent, the banks have received 50 billion euros in recapitalization from the government, using bailout funds given by international lenders, but the non-performing loans are undercutting their ability to help the economy, officials said.
With Greece floating the idea of a “haircut” on its loans to the Troika, the major opposition Coalition of the Radical Left (SYRIZA) has called for debt forgiveness for all Greeks below the poverty line.
Banks are also cutting costs. From 2010 to 2012, banks reduced their networks by 300 branches and their staff by 5,000 employees. At the end of last year the sector had 3,453 branches in Greece and employed 54,751 people and it was reported that two to three branches a day are closing.
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