The Political Economy of NPLs resolution in Greece: Ownership and Conditionality

Transcription

1 The Political Economy of NPLs resolution in Greece: Ownership and Conditionality H E L L E N I C O B S E R VAT O R Y, L S E D R. E L E N I PA N A G I O TA R E A L O N D O N, 4 O C T O B E R

2 Q1/07 Q2/07 Q3/07 Q4/07 Q1/08 Q2/08 Q3/08 Q4/08 Q1/09 Q2/09 Q3/09 Q4/09 Q1/10 Q2/10 Q3/10 Q4/10 Q1/11 Q2/11 Q3/11 Q4/11 Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Why NPLs/NPEs? 2 Recovery and Growth Rebuild Greece s economic model Dimension of Justice A central pillar of the third bailout programme 60,0 Greece: NPLs performance/classification (% of total loans) 50,0 40,0 30,0 20,0 10,0 0,0 Source: Bank of Greece Total Loans Consumer Corporate loans Mortgage Loans

3 Ownership and Conditionality 3

4 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Crisis, Recession, and NPEs Real GDP (LHS) Non-Performing Loans (% of Total Loans) Non-Performing Exposures

5 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 NPEs and Unemployment Unemployment Rate Non-Performing Loans (% of Total Loans) Non-Performing Exposures

6 Greece and Europe: Special Case Again? EU Average H m Jul-05 Q Cyprus Spain Greece Ireland Italy Portugal Greek banks better capitalised, CET 1 ratio 14.7% > 12.9% of EU Peers Coverage ratio of NPLs 48,3% (Mar- 2016) Source: EBA Risk Dashboard

7 Democratic Politics collided with ownership 7 Regime of immunity Fostered strategic defaulters (and bad debtors) Weak institutional capacity weighed in Example 1: Household Insolvency Law 3869/2010, more than cases pending, court hearings scheduled until 2032! Example 2: Corporate insolvency for SMEs Law 4307/2014, companies were to benefit, only 100 tried to access its provisions

8 Democratic politics undermined conditionality 8 Government Council on Private Debt, established by Law 4224/2013 in December 2013 Establishment of Government Council on Private Debt, Ministerial Decree 6/ Memorandum of Economic and Financial Policies, May 14, 2014 Amendment of 6/ of the Establishment of a Government Council on Private Debt, Ministerial Decree 20/ Establishment of a special coordinating secretariat to support the work of the Government Council on Private Debt Management, Law 4336/15 in August 2015 Establishment of Government Council on Private Debt, of a Co-ordinating Committee for the Management of Public Debt, of a Special Secretariat on Public Debt, Law 4389/2016, August 2016 Bank of Greece Credit and Insurance Committee (Συν. 195/1/ , ΦΕΚ Β 2376), Revision of Code of Conduct of Law 4224/2013

9 A three-pronged approach to building ownership 1. Tighten Banks Supervision 9 Banks expected to reduce NPEs by 40% or 41 billion by 2019

10 Questions not asked or answered Apply specific KPIs, set by BoG with SSM 10

11 2. Strengthen debt enforcement and insolvency frameworks A road map with concrete steps: End June Authorities - amend the legislation on out-of-court workout, making use of external expertise if needed, to improve its effectiveness (key deliverable) -legally protect private or public officials from civil or criminal liability for any actions they undertake in relation to debt restructuring -present a report and detailed proposals of amendments in order to improve the corporate insolvency law, among others, by overcoming the possible obstruction by uncooperative shareholders of the debtor company - appoint new specially trained judges and set up dedicated chambers for the trial of household insolvency cases to reduce the backlog of pending applications under law 3869/2010 -adopt a legislation on the Debt Information and Support Network located across the country, in order to provide adequate advice and support to physical persons and SMEs on the legal and financial aspects of debt restructurings HFSF - in cooperation with the BoG, will propose concrete actions regarding all remaining non-regulatory impediments to the development of a dynamic NPL market BoG -banks to develop debt restructuring guidelines among others to deal appropriately with groups of borrowers (e.g.: SMEs)/revise, in consultation with the Authorities and stakeholders, the Code of Conduct to address weaknesses and gaps.

12 Strengthen debt enforcement and insolvency frameworks End September 2016 Authorities -develop a contingency plan with a view to ensure that specialized chambers could be quickly appropriately staffed for corporate insolvency cases in the district courts of Athens, Thessaloniki and Piraeus to address the potential increase of such cases. -appoint new support staff for the trial of household insolvency cases to reduce the backlog of pending applications under law 3869/2010 -enact all necessary secondary legislation (Presidential Decree, Ministerial Decisions and decisions of the relevant supervisory administrative body) to fully regulate the profession of insolvency administrators according to a time frame agreed with the Institutions by mid-may present a concept paper and feasibility analysis on (i) a new real-estate ownership and transaction register including to carry out cross-checking against the available information on all individual properties in the cadastre and the property tax database, in compliance with the Personal Data Protection legal framework (ii) a credit bureau including a central database with consolidated information on arrears on public liabilities that would be accessible to parties with a legitimate interest 12 End October adopt amendments to the corporate insolvency law (key deliverable) in line with the agreed proposals to be submitted by end-june 2016 Sources: ECB; World Bank Doing Business Survey (2014); RBS Credit Strategy; and IMF staff calculations By end-december i. assess the effectiveness of the legal and institutional framework for the Household insolvency (law 3869/2010); -ii. fully operationalise the profession of insolvency administrators, allowing exams and registrations into the profession

13 Questions not asked or answered 13 How will the laws protecting debtors [Law 3869/2010, Law 3758/2007, Law 2251/1994, Law 4307/2014 and BoG s Code of Conduct] will be codified and aligned? Shortage of specialised and experienced judges/training? Performance? Are the incentives there for out of court settlements? Can the process facilitate the rapid exit of nonviable firms and the rehabilitation of viable firms?

14 Develop a distressed market 14 The sale of all performing and nonperforming loans is NOW allowed For loans secured by primary residences with an objective value of the property below 140,000 the liberalisation will enter into force on 1 January 2018 The tax treatment of loans acquirers and servicers will be in line with EU rules and international best practices

15 Questions not asked or answered Are the guarantees there for a smooth transition from a nosale regime to full liberalisation? How do you close the pricing gap? Why is Greece not allowed to use AMCs for NPL disposal/corporate restructuring (Sweden, Indonesia, Malaysia, Korea, and Thailand; Spain (SAREB) and Ireland (NAMA)) Can you create an environment of predictability regarding taxation? 15 The taxation on capital gains has been reformed approximately 10 times since 2000, while VAT has been amended 4 times since 2010 and taxation on RE assets is revisited virtually every year since 2005 (HFSF, September 2016)

16 Still, progress has been made Declines in Greek Bank s Nonperforming Loans 16

17 Ownership and Conditionality Re-visited Three-pronged strategy, the solution to enhance ownership Ownership as TINA Forced alignment of interests & forced implementation- is it sustainable? Outcomes-based conditionality/ shared conditionality Leverage over a sovereign country: limits? Arbitrary targets/uninformed criteria/discretionary and nontransparent means of allocating assets and contracts? Bigger picture: institutional capacity and a road map for growth 17