Crushed by big pay cuts, tax hikes, slashed pensions and austerity measures that have created record unemployment, deep poverty and a harsh recession, so many people can’t pay what they owe that Greek banks expect bad loans will hit 40 percent by the end of the year.
That assessment was made by auditors of Pricewaterhouse Coopers who used the same model as did the analytical agency BlackRock Solutions to determine the viability of the banks, which had to rely on a 50 billion euros ($67.68 billion) recapitalization from the government after a previous administration nearly brought them to insolvency by stiffing investors and holders of Greek bonds with 74 percent losses.
The news comes as the government has given the go-ahead for banks to start foreclosing on homes of people who can’t afford to pay their mortgages and as Prime Minister Antonis Samaras last year set aside a bill that would have provided relief for heavily-indebted households.
Among the bad loans is 250 million euros ($338.5 million) owed jointly by Samaras’ New Democracy Conservatives and his coalition partner, the PASOK Socialists, who got the money without collateral, aren’t repaying it and gave immunity against prosecution to the loan officers who approved it.
Greek banks have also been hit with a series of scandals, including a bad loan scheme at the failed state-owned Hellenic Postbank where investigators say top former officials and businessmen conspired to take more than 500 million euros ($677.14 million) in loans that wouldn’t be repaid. Already, 29 people have been arrested.
At the same time, Finance Minister Yannis Stournaras is insisting that others have to repay the banks to provide stabilization to the sector even though banks still largely aren’t lending despite receiving the government largesse with monies that came from international loans that were diverted from social programs.
Stabilizing bad loans is the biggest challenge for local lenders in 2014 and a key condition for the cash flow in the Greek economy to return to normal. The latest available data on NPLs released by the Bank of Greece showed that loans unpaid for over three months amounted to 29.3 percent of the total at the end of June.
Bank officials estimate that bad loans were close to 35 percent at the end of December, 2013, and that they will continue to increase this year too, although at a slower pace, before peaking in 2015 and starting to decrease from the year after that.
It was said that the slowdown expected in the next 12 to 24 months can only take place if the positive climate is not reversed again due to political turbulence or clashes with the country’s creditors. The government has offered no alternative, such as allowing people to restructure their loans with banks, and told them to pay them even if they can’t.