Greece will take steps to tackle the mountain of bad loans weighing on its banks as part of its deal with international creditors, a draft of the agreement obtained by Reuters showed on Wednesday.
Under a European Banking Authority yardstick, Greek banks’ “non-performing exposures” (NPEs) — which include loans in arrears for more than 90 days (NPLs) and restructured credit unlikely to be repaid — hit 40 percent of their portfolios last year.
The bad-debt load has worsened since then, as Greece sank back into recession and was forced to impose of capital controls, requiring banks to set aside more provisions against the bad loans and constraining them from funding the economy.
Resolving the issue has been one of the major sticking points in talks with creditors.
According to the 29-page memorandum of understanding (MOU), a copy of which was obtained by Reuters, Greek authorities commit to changing corporate insolvency laws to rehabilitate viable debtors and speed up the liquidation of non-viable ones.
Other reforms include stricter screening to deter so-called strategic defaulters from taking advantage of a home foreclosure protection law and increasing the number of judges to address the backlog of insolvency cases.