Greece Wants Bad Loan Sales to Be More Measured, Minister Says

  • Greek Economy Minister George Stathakis speaks in interview
  • Talks with creditors can conclude within weeks, Stathakis says

Greece, struggling with more than 100 billion euros ($112 billion) of soured loans, wants to cap distressed debt sales, the country’s economy minister said.

Resisting calls from creditors to further open the market, George Stathakis, 62, said the government wants to maintain restrictions on the sale of such loans to distressed debt funds. Under the latest accord signed with creditors, Europe’s most indebted state is required to develop “a dynamic market” for non-performing loans and “remove any unnecessary legal or other impediments” to their disposal from banks.

“The position of the government is that we have already opened up 50 percent of the bad loans market,” Stathakis said in an interview Monday in Athens. “We want a long transitional period in place for sensitive categories, like mortgages, small consumer loans, as well as loans to small and medium companies.”

Greece is at loggerheads with creditors over a series of actions required for the completion of its bailout review. The steps are needed to pave the way for the next emergency aid disbursement from the euro area and for debt relief talks to begin. On distressed debt sales, the latest agreement provides for the protection of vulnerable households, but the scope of restrictions remains a subject of ongoing negotiation with officials representing the “quartet” of the European Central Bank, the European Commission, the International Monetary Fund and the European Stability Mechanism.

“There are different views, we are negotiating,” Stathakis said.

Stalled Review

Greece’s parliament approved legislation last year facilitating the sale of large corporate bad loans, which have weighed on the balance sheets of lenders following the longest recession since World War II. Still, the market isn’t yet functional, the minister said. 

Issues like taxation need to be ironed out as the government wants third parties taking over the non-performing loans, or NPLs, to be subject to the same tax treatment as Greek banks, according to Stathakis, a professor of political economy at the University of Crete.

“The market can soon function, some small pieces are missing in terms of regulatory framework,” he said. “If there’s no change in the existing framework, then the matter is procedural.”

Uncertainty over yet another stalled bailout review has cast a shadow over Greek markets. The Athens Stock Exchange is the worst performing of all primary equity indexes tracked by Bloomberg this year, while bank shares have lost about half their value. Greek bonds are the worst performing of all sovereign debt tracked by Bloomberg’s World Bond Indexes this year as disagreements persist between Alexis Tsipras’scoalition government and creditors over issues including pension and income tax reform.

No One’s Interest

“The time has come to sit around a table, and, in a couple of weeks, complete the review,” Stathakis said, adding that prolonging negotiations is in no one’s interest.

The government will weather the storm of protests from farmers and independent professionals against its pension reform proposals, according to Stathakis, who dismissed speculation about snap elections.

“If there were elections, we would win them,” he said, adding that the government’s three-seat parliamentary majority is safe. “There will be dialog on pension reform, and our parliamentary majority will remain unscathed. I don’t see a scenario of political instability.”

The minister said that after the completion of the review, Greek market sentiment will improve, and the economy will rebound from the latter half of this year. Investors who participated in the capital increases of Greek lenders in 2015, who have seen the value of their holdings evaporate, will reap payoffs, he said. 

“Those who invested in Greek banks will benefit from an improved economic environment after the end of the review,” Stathakis said. “Greek banks can now tackle the burden of NPLs, the regulatory framework is adequate and they can get all the assistance they need from servicing companies specializing in the field.”

— With assistance by Christos Ziotis, Paul Tugwell, and Antonis Galanopoulos

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