Bad loans in euro zone countries add up to almost 900 billion euros, and about 100 billion are owed by Greeks. Adjustment of bad loans is one of the thorns in Greece’s negotiations with creditors in regards to the evaluation of the country’s bailout program.
The proportion of bad loans in Greece compared to other euro zone nations is impressive, given that the Greek economy accounts for only 1.5 percent of the total of euro zone member states. Nevertheless, Greece’s NPLs amount to 11 percent of the bloc’s bad loans.
The IMF report also argues that NPLs constitute the most significant problem for the entire euro zone. It also highlights the fact that the member-states with the highest NPL figures record the biggest decline in bank share values, where Greece comes first, followed by Italy.
The report also shows that the banking systems that suffered most in February were those of Greece, Italy and, to a lesser extent, Portugal, along with certain major German lenders due to structural problems, the high level of NPLs and poorly adjusted business models.
The IMF stressed the need for an integrated way of tackling the major problem of bad loans. It recommends a thorough strategy that would combine tight monitoring, legislative reform, the development of a market where bad loans would be traded, and the creation of asset management companies.
For Greek banks to implement plans to reduce NPLs, the government must first complete the bailout review with the country’s creditors. The talks, which have been going on for several months, have focused on managing NPLs, including protection of primary residences from foreclosure.