Non-performing loans in the Greek case: evolution and initiatives in the regulatory framework

Abstract

The paper examines the evolution of non-performing loans in the Greek banking market. The study focuses on the conditions related to the development of non-performing loans, (NPLs), their evolution and the regulation framework. NPLs have been one of the major consequences of the crisis in Greece, which started after the world financial crisis, and can be mainly attributed to the Greek public debt. The Greek economy suffers from the austerity policies applied after the Memorandum of Understanding was signed between Greece and its lenders in order to reduce the public deficit and in the long term the public debt. The paper distinguishes some conditions that resulted in the NPLs. One of them is the excessive increase in borrowing which took place before the crisis; it was favored by the banks’ policies but also the stable economic environment since the mid-90s, thanks to the upcoming entry of Greece into the European Monetary Union. During the crisis, the great depression of the economy along with the reductions in income and deposits caused the development of the NPLs in Greece. NPLs appeared mainly in 2010 and continue to exist up until the year 2019. They concern all the categories of loans, housing, consumer and business loans. The Greek State with the approval of its lenders tried to introduce some regulatory frameworks regarding the borrowers, households and corporations, and banks with special emphasis to housing loans. Despite thοse initiatives, NPLs remain a major problem for the banking system and the Greek economy and society.