EXECUTIVE DEVELOPMENT INSTITUTE

MASTER of BUSINESS ADMINISTRATION

The University of Sheffield International Faculty

EXECUTIVE DEVELOPMENT INSTITUTE

Project Title: Financial Crisis & Non-Performing Loans

Student Name: Kosmas Samaras

September 2018
 EXECUTIVE DEVELOPMENT INSTITUTE

MASTER of BUSINESS ADMINISTRATION

The University of Sheffield International Faculty

EXECUTIVE DEVELOPMENT INSTITUTE

Project Title: Financial Crisis & Non-Performing Loans

The financial crisis, causes and consequences

This report is submitted in partial fulfilment for the degree of Master

of Business Administration (General Management)

Kosmas Samaras

SEPTEMBER 2018

Supervisor

Dr. Asimakopoulos Ioannis

Table of Contents

SUMMARY...............................................................................................................................................1
DECLARATION........................................................................................................................................3
PROLOGUE..............................................................................................................................................4
CHAPTER 1: INTRODUCTION..............................................................................................................5
1.1 Introduction................................................................................................................................5
1.2 Research Problem.......................................................................................................................5
1.3 Research Aim and Objectives.....................................................................................................6
1.4 Research Question......................................................................................................................6
1.5 Research Methodology...............................................................................................................6
CHAPTER 2: THE FINANCIAL SYSTEM AND UNDERTAKING LOANS........................................9
2.1 The concept of a financial institution.........................................................................................9
2.2 Non-performing Loans and Relationship with Macro-Economic Conditions..........................10
2.3 Loan granting............................................................................................................................15
2.4 Loan Grant Procedure...............................................................................................................16
2.5 Loan Repayment Delays...........................................................................................................17
2.6 Loan arrangements....................................................................................................................19
2.7 Disbursement of Serviced and Untapped Loans.......................................................................23
2.8 The concept of Non-performing Loans and Loans in insecurity..............................................24
2.9 Delays in Loans and Management............................................................................................24
2.10 Delays in loan repayments by households and businesses.....................................................25
2.11 Housing and consumer loan arrangements.............................................................................27
2.12 Proposals for haircuts of bank loans.......................................................................................29
2.13 The Settings Today, the New Data and the Code of Ethics....................................................31
2.13.1 Code of Conduct..................................................................................................................32
2.13.2 The term "cooperative borrower"........................................................................................36
2.13.3 "Fair Living Costs".....................................................................................................38
2.14 Non-performing loans at European level................................................................................40
CHAPTER 3: ECONOMIC CRISIS, CAUSES AND RESULTS...........................................................45
3.1 Introduction..............................................................................................................................45
3.2 The concept of "economic crisis".............................................................................................45
3.3 Factors that led to the crisis......................................................................................................46
3.4 The Greek Reality.....................................................................................................................47
3.5 A flashback of the crisis in Greece...........................................................................................47
3.6 The case of Greece....................................................................................................................51
3.7 The causes of the economic crisis in Greece............................................................................52
3.8 Extent and Evolution of bad debts and red loans today............................................................53
3.9 The Challenges and the Role of the Banking System Today....................................................59
3.10 Developments in the Banking Sector.....................................................................................61
3.11 Difficulty at paying the loans..................................................................................................62
3.12 Loans in Delay and Establishment.........................................................................................64
3.13 Management of Delays, Complaints.......................................................................................65
3.14 Household over-indebtedness: A major European social problem.........................................67
3.15 The complexity of the concept of over-indebtedness.............................................................69
3.16 Linking over-indebtedness to responsible lending:................................................................70
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 3.17 The formation of the new bank map and impacts...................................................................71
3.18 Developments in the European Banking Union.....................................................................72
3.19 Banking Union........................................................................................................................73
3.20 Tackling the economic crisis- Conclusions............................................................................74
CHAPTER 4: ECONOMIC INDEX AND RED-LINK ASSOCIATION STUDY.................................76
4.1 Introduction..............................................................................................................................76
4.2Description of the indicators......................................................................................................77
4.3 Linking Indicators.....................................................................................................................82
4.4 Apply Linear Regression among the variables.........................................................................86
4.5 Impact of Loans and Deposits on the Financial Crisis.............................................................89
4.6 Interpretation of results.............................................................................................................92
BIBLIOGRAPHY....................................................................................................................................97
ANNEX..................................................................................................................................................105

ii
SUMMARY

From 2008, loan management, in particular loans to individuals and small businesses, has

proven to be a difficult task. This is due to the fact that both banks and customers were found in the

whirl of three unfavourable factors:

1. The evolving financial crisis that has reduced the ability of customers to meet their obligations.

2. The reduction of portfolio leverage, which reduced the revenue that supports the forecasts.

3. The inability of equity stocks to cover the avalanche of overdue loans. Problem loans not only affect

the banking system, but also the entire economy and society. The impact on economic recovery is

serious, data that those who have been unable to pay are gradually withdrawing from the margins of

economic activity. This is a subject that has been highlighted in all economies facing significant debt

problems in the real economy. The solution to the problem is not simple, and its nature has various

manifestations: in politics, economy, operational risk of banks, credit risk management and investment

banking. Several aspects of the problem are being developed below. During the financial crisis, bad

debts become "doubly uncertain". Therefore, when assessing the degree and intensity of the repayment

difficulty, account must be taken of the course of the economy and the course of the recovery. Efforts to

increase debt recovery are not beneficial at the same time that the real estate market is on a downward

path. Therefore, the management of bad debts and delays is a problem of synchronization between the

real economy and the prospects of the clientele. The main purpose of this work, which was elaborated

within the framework of the Postgraduate Program of Studies in Strategic Administrative Accounting

and Financial Management, is the reference to the economic crisis and its consequences in the banking

sector, and especially the handling of loans by credit institutions. The international financial crisis and

the debt crisis of the Greek state could not affect the country's banking system as well. Such a situation

has direct consequences, including banking. Firstly, in the first chapter, we will refer to some

introductory theoretical concepts, mainly regarding the financial system, the main features of loans,
1
non-performing loans and their management through today's regulations.

The second chapter will therefore give a brief overview of the causes and one a more

comprehensive analysis of the economic crisis and its implications, making a flashback from the

beginning to the present. The extent of bad debts and non-performing loans in the euro area will also be

analyzed and Greece as well as their management. We will also refer to the latest developments in the

banking sector and the European Banking Union, and the issue of household indebtedness and

measures to address this problem will be mentioned. The third part analyzes the data collected from the

official finances elements of the four systemic banks and their interpretation results. More specifically,

we examine five indicators that have been our key variables and their impact on red loans. Finally, the

conclusions of this paper are outlined. Finally, the epistle of this work follows one final overall report

on the issues mentioned and analyzed and their conclusions.

2
DECLARATION

All sentences or passages quoted in this dissertation from other people’s work have been

specifically acknowledgement by clear cross-referencing to author, work and ages(s).I understand that

failure to do this amounts to plagiarism and will be considered grounds for failure in this dissertation

and the degree examination as a whole.

Name.......Kosmas Samaras..............................…

Signed ………………………………….... Date............../09/2018........................…

3
PROLOGUE

Credit institutions in many countries, particularly in Greece, are already, or will soon be, faced

with the interdependent effects of three important factors:

 the financial crisis that started in 2007 from the US securitized home loan market, which led the

international economy to a recession,

 the unfavourable fiscal situation and austerity programs in many countries that affect both the quality

of loan portfolios (mainly due to the reduction of disposable household income and corporate income)

and the valuation of securities,

 the aid, as a result of the international financial crisis, of strict regulatory framework for credit

prudential supervision.

It is clear that the estimated impacts of the three factors mentioned above have already changed

or are very likely to change the borrowers, depositors, banks and supervisors, as the effects of the crisis

are crystallized. In particular, the new Basel III regulatory framework is expected to have a significant

impact on banks' performance and profitability ratios.

Upgrading the role of risk management will be a guarantee for the safe operation and

maintenance of profitability, and will strengthen organizational structures, policies, procedures and

information systems, and will catalytically influence the business model of bank operations worldwide.

Strengthening the risk management function, as well as its governance structures, will

be one of the key factors of international financial stability. In conclusion, the current crisis is likely to

lead to a more prestigious and less risk-taking international banking system, characterized by a

significant strengthening of the system internal control, with particular emphasis on the preventive

operation of risk and capital management.

4
CHAPTER 1: INTRODUCTION

1.1 Introduction

The entire functioning of the economy is said to be dependent on the financial system of the

country. It can be understood as a system that comprise of banks of as central entity along with various

other providers of financial services (Rossi and Malavasi, 2015). Apart from serving as a deeply

entrenched institution in the society that provides employment to a large population, the major

significance and contribution of the bank lies in the fulfillment of three key functions of the financial

system. These are the functions of credit provision, liquidity provision and risk management services

(Bhagat, 2017). Credit provision serves as a credit support the economy thereby assisting the

government to be able to invest in the projects concerning infrastructure by making a reduction in the

cycles of tax revenues and correcting expenditures. Liquidity provision implies to the fulfillment of the

sudden cash needs of the businesses and individuals while risk management services include the range

of services that help in addressing the risks of financial markets and commodity prices by risk pooling

(Dewatripont, Rochet and Tirole, 2010). These services play a highly valuable role despite being

critical at the time of financial crisis. In the fulfillment of each of these functions, banks serve as the

cornerstone of the national financial system, whose services offer a safe haven for the earnings of the

individuals and loans to the businesses and requiring capital (Bhagat, 2017).

In the absence of this source, it would become really difficult for the businesses to pursue their

growth plans and return profits to their owners and outside investors. Channelization of the gathered

savings in the form of deposits in the form of loans serves as a key boost for the overall economic

growth and development (Dewatripont, Rochet and Tirole, 2010). However, this small appearing task

of gathering deposits and disbursing loans might not be as simple as it appears to be because a slightest

mismanagement in their performance can lead to some as serious as a financial crash having

repercussions in the entire global economy (Siegel, 2014). Confidence and trust of the people in the
5
banking system has thus gained huge significance for the robust health and position of an economy. In

case the banks are unable to redeem the savings accounts through adequate planning and management

of saving deposits in loan disbursement, it not only leads to the quick drain of cash from the banks but

also trigger the fall of the entire institution, eventually leading to the loss of trust in the market,

bankruptcy of the banks and the crash of the financial markets (Dewatripont, Rochet and Tirole, 2010).

This suggests a key role to be played by the function of deposits and loans management in a

financial crisis. However, simultaneously it can also be identified that the prevalence of a financial

crisis also disrupts the banks from performing this function because of the loss of trust in the financial

system to make deposits and investments by businesses and inability of the businesses to raise money

to steer the economy (Siegel, 2014). This further suggests an impact of the financial crisis on function

of deposits and loans management of the banks. In this regard, this research seeks to examine the

relationship between financial crisis and non-performing loans in selected Greek banks.

1.2 Research Problem

The banking institutions face various difficulties in respect of the sector-based challenges

wherein the major cause of serious banking issue is directly associated to the standards for credit for

the borrowers aggravated by poor portfolio risk management and most importantly the failure in

disbursement of loans. In this respect, it has been further examined that the management of loans in

2008, particularly the loans extended to the individuals and small businesses have proven to be highly

risky and challenging for the banks in the European economy because three key factors Dallago, B. and

(Guglielmetti, 2012). These are firstly, presence of the financial crisis hampered the ability of the

customers to fulfill their credit obligations and clear their debts. Secondly, the reduction in the portfolio

leverage reduced the revenue that supported the forecasts and lastly the inability of the equity stocks to

offset the losses incurred because of overdue loans. The simultaneous effect of these three factors not

only affected the banking system but also the entire society and economy. Moreover, the solution of
6
this problem becomes complicated because of varies manifestations of this problem in politics and

economy, credit risk management, operational risk of banks and investment banking, which further

aggravates the management of bad debts in respect of an economic crisis (Bhagat, 2017). This being

identified as the research problem for this study, this research seeks to examine the relationship

between financial crisis and the banking sector, particularly in respect of the handling of the loans and

their disbursement in Greece.

1.3 Research Aim and Objectives

The aim of this research is to examine the relationship between financial crisis and non-

performing loans in selected Greek banks. To address this aim, some objectives are developed. These

are:

 To examine the role of non-performing loans in generating the financial crisis in selected Greek

banks

 To investigate the impact of financial crisis on the non-performing loans in selected Greek

banks

 To identify any other factor that played an important role in the financial crisis

1.4 Research Question

To direct the focus and scope of the research a specific and clear research has been developed.

This research question is, ‘What is the relationship between financial crisis and non-performing loans

in selected Greek banks?’

1.5 Research Methodology

In order to address the above discussed aim, this research undertakes a secondary data based

research wherein positivist research philosophy has been used in combination with deductive approach

and exploratory research design. Research philosophy implies to a research perspective based on a

7
specific set of commonly shared values, concepts and practices (Black, 2011). As the positivist

philosophy believes the world to be objective and external and emphasises on facts, it is more useful to

help in addressing the aim of this research with the help of the assessment and evaluation of the factual

data regarding the loans and deposits made by the Greek banks. This philosophy thus allowed an

objective and independent analysis of the relationship between financial crisis and non-performing

loans with the help of three key research variables namely: deposits accepted by the banks, loans

extended by the banks and non performing loans (Bergh and Ketchen, 2009).

This philosophy was also useful for this research because it is consistent with quantitative

research and has helped in evaluating the financial data in a more appropriate manner. Research

approach is the fundamental reasoning to help reaching a rational conclusion (Bryman, 2006). In this

respect, this research uses the deductive approach because this research moves from general (the

examination of financial crisis and non performing loans) to specific (relationship between financial

crisis and non performing loans in Greek banks). The use of this approach also helped in narrowing the

scope of the research and facilitated an in-depth examination. The research also uses exploratory

research design as a framework to plan and undertake collection and analysis of data in an appropriate

manner (Crowther and Lancaster, 2012).

This design has been more suitable for this research because it examines real-life phenomena

about the financial crisis and functions of the banks in Greece. The data for this research has been

gathered with the help of secondary data collection methods wherein financial reports, annual reports

and other financial statements of the four selected banks namely: Alpha Bank, Eurobank, National

Bank and Piraeus and financial figures regarding the deposits made, loans extended and non-

performing loans have been gathered. The financial information gathered for this research has ranged

from the year 2006 to 2016 to examine the relationship between financial crisis and non-performing

loans. The gathered data has been tabulated in the excel sheets and were analysed with the help of
8
statistical data analysis methods wherein regression, panel regression and correlation are used

(Edmonds and Kennedy, 2012). The findings of the analysis are presented with the help of descriptive

statistics method (Lim and Ting, 2013). In addition to that, it is also assured that the research has

followed all the prescribed research ethics to be considered in respect of secondary data based

quantitative research. For this purpose, strict measures are taken to prevent involvement of the personal

opinions and experience of the researcher in the findings, plagiarism and manipulation of the data is

strictly avoided and due credit is given to the scholars referred for the study by providing authentic in-

text citations (Crowther and Lancaster, 2012).

9
CHAPTER 2: THE FINANCIAL SYSTEM AND UNDERTAKING LOANS

2.1 The concept of a financial institution

Financial system is a set of markets where financial products and tools are traded. This involves

individuals and institutions that are traded on these markets, as well as its regulators and supervisors

Credit institutions are the most important part of financial system of an economy and help significantly

in its development, as through the operation of financial intermediation they increase the savings that

they subsequently channel to the productive units. In other words, the main function of credit

institutions is the transfer of funds from surplus to deficit funds, in order to contribute to the more

efficient use of financial resources.

Credit institutions to cover their operating costs (wages employees, rents, electricity, interest on

deposits, etc.) and to make a profit, they grant loans at a higher interest rate than deposits. Loans are

granted to individuals, businesses and the state. Like any business, the commercial bank has the

objective of maximizing profits. As the loans are raised, the higher the interest it receives and,

therefore, its profits. Maximizing profit would therefore essentially maximize the funds provided by the

bank. But there are two serious ones restrictions on lending. One derives from the policy and

regulations imposed by the Central Bank, such as the determination of the percentage of cash. Cash is a

stock of money that the commercial bank has to hold in its cashier. For example, when the Central

Bank determines the rate of liquidity at 2%, commercial banks are obliged

for every 100 Euros deposited by their clients, to keep 20 euros in their cashier are able to lend the

remaining 80 euros. The other restriction comes from the commercial banks themselves, seeking to

secure the return of the money they lend together with the interest. For this reason, when a bank grants

a loan, it looks after the financial situation of the borrower and the possibility of using the loan

efficiently, that is, seeks to secure its funds. In general, commercial banks seek to maximize profits and

at the same time minimize the risk they undertake.

10
2.2 Non-performing Loans and Relationship with Macro-Economic Conditions

Several macroeconomic factors had a significant impact on the amounts of NPL during the

financial crisis. Many researchers found that NPL ratio tends to increase during the times when

economic growth is slow. Particularly, NPLs and GDP have been found to have an inverse relationship.

All information and analysis presented in this research in the context of financial crisis is based on the

impact of NPLs. In this regard, it is important to mention that other factors, including exchange rates

and unemployment rate have not been used as regressors. Since the focus of this research rests on

deposits accepted and loans disbursed by the selected banks, the following information would be

useful:

Loans (million Deposits (million

Alpha Bank Euros) Euros)

2006 124.68 0.00% 104.65 0.00%

2007 152.81 22.56% 130.97 25.15%

2008 195.38 27.86% 158.21 20.80%

2009 209.96 7.46% 168.70 6.63%

2010 210.21 0.12% 159.26 -5.59%

2011 200.87 -4.44% 132.17 -17.01%

2012 182.26 -9.26% 108.18 -18.15%

2013 254.23 39.49% 168.58 55.84%

2014 479.14 88.47% 431.06 155.70%

2015 444.71 -7.19% 313.61 -27.25%

2016 427.53 -3.86% 328.03 4.60%

11
 Loans (million Deposits (million

Piraeus Bank Euros) Euros)

2006 76.17 0.00% 66.09 0.00%

2007 107.22 40.77% 85.69 29.66%

2008 147.98 38.02% 119.67 39.66%

2009 115.18 -22.16% 124.88 4.35%

2010 151.84 31.82% 119.80 -4.06%

2011 146.30 -3.64% 101.66 -15.14%

2012 168.96 15.49% 110.38 8.57%

2013 298.45 76.64% 217.04 96.64%

2014 571.43 91.47% 552.72 154.66%

2015 505.91 -11.47% 389.69 -29.50%

2016 497.08 -1.75% 425.16 9.10%

Loans (million Deposits (million

Eurobank Euros) Euros)

2006 126.32 0.00% 88.44 0.00%

2007 167.69 32.75% 122.06 38.02%

2008 217.50 29.70% 174.70 43.13%

2009 226.90 4.32% 187.10 7.10%

2010 232.80 2.60% 176.30 -5.77%

2011 208.80 -10.31% 141.70 -19.63%

2012 195.12 -6.55% 119.34 -15.78%

12
 2013 201.66 3.35% 146.20 22.51%

2014 350.76 73.93% 319.85 118.78%

2015 329.74 -5.99% 228.02 -28.71%

2016 319.08 -3.23% 236.70 3.81%

Loans (million Deposits (million

NBG Euros) Euros)

2006 148.79 0.00% 191.63 0.00%

2007 203.31 36.64% 225.87 17.87%

2008 250.37 23.15% 259.36 14.83%

2009 277.48 10.83% 280.75 8.25%

2010 297.78 7.32% 277.41 -1.19%

2011 294.04 -1.26% 250.10 -9.84%

2012 282.54 -3.91% 227.05 -9.22%

2013 281.64 -0.32% 249.22 9.77%

2014 654.16 132.27% 815.12 227.06%

2015 432.21 -33.93% 675.64 -17.11%

2016 393.99 -8.84% 534.51 -20.89%

13
 During the debt crisis, NPLs became an acute problem in the European banks, especially from

the year 2014 onwards. The data presented above clearly supports the aforementioned notion in regard

to the banks selected for this research. The graph further reveals a consistent decline in the loans

disbursed by these banks since the year 2007, which interestingly, was the year when the global

financial crisis had just begun. After the onset of the financial crisis, the money markets began to show

signs of economic downturn as the amount of loans disbursed to the customers reflect a declining trend.

Till the year 2011-12, the average decline continued. The banks, then struggling to maintain

profitability, started extending loans without due diligence and at relatively cheaper interest rates,

which subsequently, encouraged the customers to borrow from the banks. The customers’ borrowing

was also in alignment with the fact that many of them were struggling with the shortage of cash, which

was a direct impact of the global financial crisis and economic crunch.

The banks, as discussed above, focused on lending to the customers with the hope of increasing

revenues in terms of interest. However, the customers did not have sufficient money to even meet the

interest payments, let alone their debt obligations. The shortage of cash led to the creation of a bubble

within the Eurozone. When this bubble burst around the year 2014, the entire economy crashed. As the

14
customers were rendered unable to repay their debt obligations, the entire burden of the debt fell on the

banks, many of which succumbed to it and were left insolvent. In the context of the banks selected in

this research, it can be observed from the graph presented above that the loans disbursed by them fell

drastically after the year 2014, after which point, NPLs started increasing exponentially.

Fig: NPLs as a % of Total Loans

Post-2014, the financial markets across, along with the banking industry started making

extensive efforts to deleverage their respective institutions by getting rid of as many NPLs as they can.

Getting rid of NPLs became the top priority for the managements of the banks, as well as various

governing bodies including the European Union and IMF. As the percentage of NPLs declined

marginally after the year 2015 and the amount of loans disbursed started increasing gradually,

households and corporate bodies started paying off some of the loans, loans to deposit (LD) ratio

started increasing. He table given below reflects that LD ratio for the selected banks for the years 2006-

2016:

15
 Fig: Loans to Deposit Ratio

The graph given above reveals that the LD ratio has trended low during the years 2006-2016,

which primarily, has been an indicator of the fact that the deposit base for the selected banks has grown

at a greater rate than the loan portfolio during this time. It is important to note that an LD ratio of 1.0

indicates that a bank loans out $1 to the customers for every $1 it brings in as deposits. It, however,

also implies that the bank does not have substantial cash reserves for any contingencies. In the context

of the selected banks, it must be noted that the average LD ratio for the banks remained close to 1.0

over the ten-year period, which is quite sufficient top reflect on the banks’ financial woes during this

time. Although an LD ratio of 80-90% is acceptable for banks operating under normal circumstances,

the burden of financial crisis and impact of other macroeconomic factors ensured that even an LD ratio

of greater than 1.0 could not prevent these banks from struggling during the times of financial crisis.

2.3 Loan granting

Loan lending is one of the main functions of a credit institution and occupies the bulk of the

bank's assets. Due to the fact that the loans provided by the banks are the main source of revenue, but

also involve higher credit risk, a more extensive analysis of the funding from the credit institutions is

16
necessary. Loan is a contract whereby one of the parties (the lender) transfers to the other (the debtor)

by ownership money or other replacements identified in the transaction by number, measure or weight

and he (the debtor) is obliged to pay at the time agreed with other things of the same quantity and

quality. This is the main and most common credit agreement, which creates a purely personal

contractual relationship between the lender and the debtor. On the other hand, credit is the contract

whereby one of the parties (the lender) transfers to the other (debtor) capital to use it at a certain time

and he (debtor) undertakes to render it after the end of the year. It is essentially an agreement with

which one of the parties has the obligation to temporarily strengthen the purchasing power of the other.

The difference of credit from the loan lies in the fact that credit is only relevant

with financial support from the counterparty, while the loan is also related to replaceable items, for

example the commodity loan can be considered credit only when it is cash. Banks only provide loans in

monetary form. The loan is drawn up with the debtor signing the loan agreement

and any guarantors if any. The loan agreement is a private document and includes general and special

Trading Terms. Typically, they have an established formula to protect traders and ensure transparency

of operations. The specific trading terms define how the loan will be granted (either in a lump sum or in

installments), how it is repaid (one-off or at regular maturities) and the interest rate (floating or fixed).

The General Terms of Trade indicate the Bank's willingness to third parties

similar to all banks. They include rules of consumer law, bank rules, code

banking ethics and the rights of the bank and the client. The acceptance of the general and special terms

of the contract by the counterparty customer enables the bank to exercise its legal rights resulting from

the signing of the contract in case the customer fails to meet his obligations.

2.4 Loan Grant Procedure

Each bank has its own credit assessment and approval systems and methods and also applies its

own credit policy to manage the credit risk according to the guidelines and instructions given to it by
17
the management. Generally, however, banks follow some basic procedures and principles to make a

loan, which is common to all banks. Initially, the client submits a loan application and once the bank

determines that the client meets the basic conditions for the loan, the analysis extends to an in-depth

processing of the request. This processing includes the investigation and evaluation of all customer-

related qualitative and financial data, in combination with the client's credit policy and the applicable

regulations. Analysis of the customer's qualitative and financial data helps the bank to deepen the loan's

ability to repay or not, where its objective is always to provide a healthy loan with a smooth repayment

rather than the liquidation of its collateral. Essentially the bank assesses the client's creditworthiness, its

ability to meet the obligation it has assumed.

Depending on the outcome of the evaluation, the customer request is approved or rejected. In

the case of approval, once a series of procedures have been completed and the contract is signed, the

loan is disbursed. The bank, naturally, watches throughout the loan if it is served. Particularly in the last

few years, the stage of monitoring the loan is particularly important, due to the volatility and

uncertainty of the economic environment. The process ends with the end of the agreed time between

the bank and the customer and, of course, it has been smoothly settled.

2.5 Loan Repayment Delays

Systematic monitoring of loans helps to identify problems early on in the course of the loan and

leads to the necessary measures, extra-judicial or judicial, in the event of delays in repayment of the

claim. The loan accounts, depending on their regular or non-servicing, as well as the delay stage, are

distinguished in the following categories:

1.Date Accounts

When a grant is normally repaid, it is considered to be up to date and it is therefore unnecessary

to take any measures to ensure its recovery.

2.Team Delay accounts

18
 If the time limit for payment of a claim expires and the customer has not settled his obligations,

the monthly instalment becomes due or overdue and the grant or loan account is considered to be

temporarily delayed. In this case, the account is debited with a default interest rate, whereas a default or

a full amount of the debt can be classified as default. When a grant is in temporary repayment delay

and the client arranges for his or her outstanding debts, the account of the grant becomes yet again

informed. However, if the client fails to settle his debts within a reasonable time, then the banks take

timely action to inform the creditor and any guarantors of overdue debts and thus prevent the transfer

of an account end-of-life. The measures taken by banks at this stage are telephone communication with

the borrower and the guarantors, the reminder of their obligation and the sending of letters of

information.

Upon expiry of a certain number of overdue instalments, which it differs from bank to bank,

and since the customer does not cooperate and continues not to pay outstanding instalments, then the

grant is put into a set-aside facility and the bank sends out-of-court notifications to the borrower. Out-

of-court notice is served to debtors by a bailiff in order to obtain a certain date. With the out-of-court

notification, the parties are informed of their debts and are called upon to repay them within a certain

period of time, otherwise the bank proceeds to close the accounts and legally claim their claims. The

date of expiry of the extra-judicial documents notifications are typically 10 to 30 calendar days after the

notice is served to the customer in order to have a reasonable time to meet his or her obligations. If the

customer, within the time given by the bank, arranges his debts, then his loan is again informed.

3. Accounts in Final Delay

If, at the expiration date of the out-of-court notifications, the client still fails to meet his

obligations, the account of the grant is transferred to a final delay and the bank proceeds to the

announcement of the loan agreement to Tiresias SA, after the confirmation of its performance out of

court to the client and the date of service is mentioned in the announcement. Loans that are transferred
19
to a final delay can not be restored to an informed form and are due in their entirety. At the stage of the

final delay of repayment, the bank proceeds to termination of the contract and final closure of the loan

account while cooperating with its legal department or the collecting company in order to carry out all

necessary legal actions for the recovery of its claims through the enforcement procedure (order for

payment, forced seizure, auction, debt classification, collection).

2.6 Loan arrangements

During the current unfavourable economic environment, banks operating in Greece have

continuously and extensively enforced each category of loans and debts to them, housing, consumer

and business. On a continual basis, all banks are set up and implemented by specific regulation

programs, addressed to banks- in all the categories of debtors, with special attention to the facilitation

and alleviation of those most affected or affected by the crisis, such as the unemployed,

redundant pensioners and those who have suffered a severe reduction in their income. According to

responsible estimates, the total number of regulated loans (housing, consumer and business) exceeds

800,000, half of which concern consumer loans and credit cards that, on the one hand, the socially

justified need to facilitate borrowers and the safeguarding of the interests of depositors whose deposits

form the basis for the granting of loans. In any case, it should not escape our attention that the banks in

our country, as well as internationally, lend households and businesses not from their own capital,

which contributes to their solvency, but from their loan funds, which are mainly derived from the

deposits of their clients (individuals and businesses).

In this sense, the undue treatment of the loans would put at risk the deposits from which the

loans in question were financed. In cases of clients with temporary liquidity problems, they either keep

accounts with overdue debts or are aware and a problem is identified prior to its occurrence, it is

possible for banks to settle debts in order to repay their obligations. The arrangements are for the

collection of debts and are made where there is no other solution. They are mainly made to sustainable
20
customers and businesses that face temporary problems in order to recover and overcome these

difficulties and less in the case of customers where it appears that they will soon be unable to meet their

obligations. The settlement of overdue debts of a financing is made either by a new grant, which is

refinanced and the previous financing and its overdue debts with new funding, either by updating and

modifying the existing repayment schedule. The adjustment and modification of the repayment

schedule of a grant is made either by extending the current maturity of the loan for a number of months

in order to reduce the monthly amortization instalment or by postponing the payment of

instalments of the loan for a certain period of time, or with the grace period capital and the payment of

interest only for some time. Finally, a combination of the above could be applied in order for the

arrangement to be made to be fully responsive to the customer's needs.

In order to settle a loan the customer comes in contact with the bank and informs them of the

current problems in order to find a joint solution that will help to serve better the loan. It then submits a

request to which any guarantors or co-beneficiaries have to join. The bank assesses the customer's

request, controls his / her financial and professional status and ends up in the proposal that helps the

client to meet his / her obligations but at the same time seeks to improve the bank's secure position.

Under no circumstances should the arrangement increase the bank's risk. Finally, the client, co-

beneficiaries and any guarantors sign the amending contracts and once the arrangement has been

implemented they are now starting to serve the new, reduced obligations. As part of these efforts to

facilitate borrowers in 2010, Law 3869/2010 was also known as Law

Katselis. Under that law, qualifying persons may, if they wish, be subject to a favourable arrangement

for their mortgage on their principal residence. These favourable arrangements are proposed to cover:

• Employees (public and private employees)

• Retired

• those who have a constructive relationship of dependent work

21
• the unemployed

• sufferers of severe diseases

• the rich

• those with permanent disability,

Provided that their annual taxable income does not exceed € 25,000 and from 01.01.2010 until

the date of submission of the relevant application this income has been reduced by more than 35%. The

law enforcement process involved four stages:

Stage 1: Effort to reach an out-of-court settlement: the debtor owes six months before filing the

application to the court to try to reach an out-of-court settlement with all his creditors. Once this effort

is successful, the process expires.

Stage 2: Trying for a court settlement: if the extra-judicial fails

The debtor then submits an application (with the content specified in the relevant provisions) to

the competent court and communicates it to his creditors. Where creditors:

• either all or those whose claims exceed one half of the total amount receivable are in line with the

content of the claim settlement plan, it is considered that the settlement has been accepted and that the

request for settlement and discharge of the debts has been withdrawn.

Step 3: Judicial Debt Relief Debt Settlement: If the debt settlement plan is not accepted by the creditors

in accordance with the foregoing, the court will examine of its own motion whether the conditions for

settling debts and the debtor's discharge are met and issue the decision within two months of discussing

the application:

• If the debtor's assets are inadequate, the court, taking into account the criteria set out in the draft law,

obliges him to pay a fixed amount monthly for a period of four years. Until the end of the four-year

period, at least 10% of the total of its debts must be repaid at the time that the application was notified.

• In exceptional cases (eg chronic unemployment), monthly payments of low height or even zero may
22
be specified.

Stage 4: Judicial settlement of debts without exemption:

• If the debtor's weakness is non-fraudulent and temporary, and

• its assets and expected earnings sufficient to satisfy creditors, the court may simply settle debts that

exist on the date of notification of the claim to the creditors, thus ending the procedure. The

arrangement may provide for the suspension of the periodic payment of the debt up to two years:

or with the obligation to pay only interest on a periodic basis

• either by capitalizing them without prior interest rate at the end of the suspension. In the process, the

Ministry of Development has announced changes to the HLL Act. The goal was to have the law in

place effective as well as long-standing litigation, have put many borrowers in hiding. Specifically:

1.Effect the effectiveness of out-of-court settlement with anticipation that the agreement of the

creditors representing 50% + 1 of the debt claims will be sufficient and not the full consensus (100%)

required so far.

2. The grace period will be 48 months, in 4 years, and the monthly installment to the bank should not

exceed 30% of the net monthly income and will include interest and part of the capital.

3. For households with incomes below 15,000 euro , the interest rate is projected to be 1,5% (0,75+

basic ESF). Also in the case of the unemployed (registered with OAED) with a unique income, the

Unemployment benefit will also provide the possibility of zero payments with full interest relief for a

total of 6 months within the grace period.

4.Also, its total assets will be taken into account a borrower who, in order to join the arrangement,

should have a total real estate with objective up to 250,000 euros, total deposits up to 10,000 euros,

while the unpaid amount of the loan should not exceed 150,000 euros.

5. The court settlement procedure is discontinued.

6. The institution of mediation with a view to faster out-of-court settlement of debts of heavily indebted
23
households

7. Finally, there are also improvements in the operation of the Teiresia

with the introduction of a point system by the banks and an economic assessment

The above regulations and their improvements have been a protection shield for employees and

pensioners who currently serve their loan obligations, however, due to the crisis and because of their

income reductions they are having difficulty in serving them.

2.7 Disbursement of Serviced and Untapped Loans

Loans rarely become sudden and almost always precede symptoms that a bank has the ability to

perceive as it periodically and systematically monitors its customers. Even if a bad loan is damaged, its

size depends on the bank's ability to perceive it in a timely manner and to move immediately to secure

its money. At this point, we need to make a significant distinction between servicing (loans) and non-

performing loans (non-pecuniary loans). As we consider that it is repaid according to the criteria that

the bank has set, while as non-servants we consider those that are not repaid according to its criteria. A

problematic loan defines what has or may have problems in repayment, which

but it can be either served or not. The limitation of non-performing business loans depends on the

timely diagnosis of the symptoms of financial problems of the borrower's business. The above

diagnosis enables the bank to work with borrower and take the appropriate measures. Usually, the

measures taken by the banks result in loan restructuring / regulation. In order for banks to detect

problematic loans to be timely, they set up relevant monitoring procedures according to which they

should:

 To adequately analyze the borrower's financial data on a periodic basis.

 Determine delays based on their duration (up to 30 days, 31-60 days, 61-90 days, over 90 days) and

define relevant procedures depending on the duration of the delays.

To set procedures depending on the amount of the existing one opening to every borrower.
24
 Have clearly defined the characteristics of a normal loan (terms, duration, type, quality of collateral

etc.).

 Have a clear strategy on new loans (geographical areas, industry, turnover, etc.).

 Keep continuous and honest communication with borrowers.

To review the overall picture of customer collaboration on a regular basis.

 To understand directly the signals provided by the market.

Monitoring of loans is a necessity, especially in difficult economic times. For these purposes,

banks employ specialized personnel to be able to monitor their loan portfolio at any time and be able to

count their exposures, knowledge associated with important decisions (eg a credit institution with large

exposures is very likely to decide on a share capital increase).

2.8 The concept of Non-performing Loans and Loans in insecurity

Unsecured loans are an inevitable consequence of advances. After a loan is granted, unforeseen

events that may impede the financial position of the borrower may occur or there may have been a

wrong estimation of the bank in its assessment. Pursuant to Article 341 of the Civil Code, "If a certain

day is agreed for the fulfillment of the benefit, the debtor is forfeited only on the expiry of that day."

Loans in doubt are those for which there are reasonable indications that they will not be collected in

whole or in part. The bad debts, if they are not receivable, are fairly written off and amortized for the

amount that is the probable loss so that the receivables that will appear in the balance sheet of the bank

are in their real value. Every time banks prepare their financial statements, they should thoroughly

review their entire loan portfolio to see if there are any cases they should

in recognition of their impairment. Loans whose value is impaired are called impaired loans.

2.9 Delays in Loans and Management

We have just mentioned the restructuring / funding arrangements which are a common practice

in banking, especially in times of economic crisis. In this section we will describe loan delays and the
25
management of those who are involved. We should emphasize that credit institutions are particularly

interested in the proper management of such situations is why they have special jam units, delays or

otherwise called them. However, a critical point in the overall treatment of imprisoned loans is the

correct categorization according to their "status" (eg temporary, permanent delays, etc.) in order to

properly assess the bank's portfolio.

2.10 Delays in loan repayments by households and businesses

Outflows of deposits have resulted in a worsening of the ratio of loans to deposits rather than

the restriction of new loans. With the gradual recovery of deposits declined to a satisfactory level

compared to the corresponding average of the euro area countries (see Chart VII.6). The recession as

well as the increase in the tax burden led to a deterioration in the financial situation of households and

businesses. As a result, credit risk increased, while the ratio of overdue loans to total loans increased

six-fold within a five-year period (September 2013: 31.2%, December

2008: 5,1%) (see Chart VII.7).

Loan default rate was moderate until 2010, but increased significantly in 2011 and 2012 as a

result of the deepening recession and generalized uncertainty that seemed to have affected trading

behavior. In the nine months in 2013 showed signs of stabilization. As in previous years, at the end of

September 2013, the highest rate of overdue loans was observed in consumer loans (45.8%), as they are

usually not covered by collateral (see Chart VII.7). Housing loans showed a lower rate of delays

(September 2013: 25.8%), while the corresponding rate for business loans was 31.2%.

According to data from the Bank of Greece, at the end of March 2012, the ratio of overdue loans to

total loans amounted to 18.7% against 16% recorded in December 2011 and 10.5% in December 2010.

At the same time, the coverage rate of deferred loans remained at a low level. The increase in overdue

loans should be attributed to the uncertainty surrounding the economic situation in Greece in 2011 and

the continuing deterioration in household and business incomes. Credit institutions established in
26
Greece continued their conservative lending policy during 2011, aiming to improve their loan portfolio

for households and businesses. The negative impact on the quality of the bank's portfolio was, and

continues to be, addressed by a series of measures taken by banks, including:

• keeping speech high to cover loans in arrears from 46.2% cumulative provisions (December 2010:

46.2%, December 2009: 41.5%, December 2008: 48.9%),

• the formation of particularly high provisions for dealing with credit risk; and

• reducing the concentration of bank loans to specific customers or business sectors.

Banks, reluctantly in the beginning and more active afterwards, made loan adjustments aimed at

facilitating borrowers and curtailing loans. At the same time, banks sought to increase collateral to

cover loans already granted (with the aim of reducing the loss in case of default) and tightened the

criteria for granting new loans. The crisis also affected those factors that determine the resilience of the

banking sector, ie profitability, forecasting policy and capital adequacy of banks. After the limited

profitability of 2009, followed by a three-year period in which banks, due to the need for increased

credit risk projections and, in particular, in 2011, the impact of the debt restructuring, recorded

significant losses (after taxes). In 2009-2012, net interest income, which over time is the most

important source of bank revenue, showed a decrease. Interest income on the one hand due to the

increase in non-performing loans (for which no interest is charged) and on the other hand due to the

reduction in the balance of loans (as new lending was limited). Effective management of troubled

assets is essential. The accumulation of overdue loans discourages the granting of new credits, among

other things by depriving banks of resources that could be channeled into new loans. It also makes

forecasting necessary and increases the banks' capital requirements, further limiting the ability and

availability of banks for risk-taking and thus lending. Improving

the quality of the loan portfolio, through effective management and as a result of the improvement in

economic conditions, on the one hand, will strengthen the trust of depositors and markets and, on the
27
other, will lead to a reduction in interest rate margins.

2.11 Housing and consumer loan arrangements

As early as the beginning of 2010, banks, following the economic and social changes and

responding to the unfavorable economic situation, despite the liquidity problems in the banking system,

undertook a very large number of arrangements with borrowers who were having difficulty in servicing

their loans, with particularly favorable conditions and due social sensitivity. Banking regulation

programs started in 2010 and continued throughout 2011, 2012 and 2013, offering various types of

debtors, such as civil servants and pensioners (due to the cut in their earnings) and the unemployed,

lengthening the duration by reducing their installments. In particular, according to data from member

banks of the Hellenic Banking Association (Table 1.10), it appears that mortgage and consumer loan

arrangements, including credit cards, were presented on 30 June 2012, compared to December 31,

2011, an increase of 16.4%. It also proves that:

• Banks implement loan arrangements even to households with a relatively low lending balance, since

the average regulated amount per regulated loan has decreased by 12.2%, and

• the loan arrangements to date have been satisfactorily served, which confirms that banks' regulatory

proposals are tailored to the current capabilities of the majority of households.

28
2.11.1 Table: Housing and consumer loan arrangements

Total number of Total Average Amount /

regulated loans how much regulated loan

regulated loans

Settings 31.12.2011: 31.12.2011: 11.99 31.12.2011: 66,971

mortgage loans 179.094 billion euro euros

30.6.2012: 30.6.2012: 30.6.2012: 55,670

222.384 12.38 euros (-16.9%)

(24%) billion.euro

(3.3%)

Settings 31.12.2011: 31.12.2011: 5.88 31.12.2011: 5.88

consumer 390.712 billion billion

products euro euro 31.12.2011:

loans 15.040

and euro

credit cards

29
 30.6.2012: 30.6.2012: 5.88 30/06/2012: 13,338

441.038 billion euros

(13%) (0%) (- 11.3% )

TOTAL 31.12.2011: 31.12.2011: 17.87 30.6.2012: 27,528

569.806 billion euros

euro (-12.2%)

30.6.2012: 30.6.2012: 18,26 30.6.2012: 27,528

663.422 (2.2%) euros

(16.4%) (-12.2%)

2.12 Proposals for haircuts of bank loans

It is evident that the unprecedented economic crisis that plagues the country has led many

households and businesses to be unable to meet their contractual obligations to banks. For their part,

banks have already put forward large forecasts of these developments on their balance sheets and have

restructured a significant percentage of their existing customer loans to facilitate borrowers. In this

difficult environment, there have been for a horizontal, generalized and uncritical mitigation of existing

bank loans to relief of domestic businesses and households. Such a decision would, however, entail

equivalent losses on the banks' balance sheets and, consequently, a further reduction in their capital

adequacy, at a loss for their shareholders, the main one of which will now be the FTT and, by

extension, the Greek State. The above losses should be covered either by mending the liabilities of the

30
banks or by recapitalizing them with amounts that would have to be recovered

European partners and the IMF. The final cost of repayment of these new funds should be borne by the

state budget, ie the consistent Greek taxpayer, with a further increase in public debt. Considering that

only half of the Greek population currently has loans and about 80% of them are serviced in time, the

charity behavior towards a creditor, without criteria and procedures, would lead to a large redistribution

of income and serious injustices against those who do not have borrowed and / or are consistent in their

obligations despite the difficulties they face, while in the business such an action would distort healthy

competition. The impact of one such a development in trade practices and the functioning of the

economy would be particularly negative, as it would lead more and more borrowers to a generalized

practice of defaulting their contractual obligations to all with dramatic negative effects on the economy,

growth and employment. However, lately has been lit green light to write off the interest that has

accumulated in the red loans lit for the banks. The "haircut" of interest is also in the best interest of the

banks to continue repaying, as their alternative is to sell them at very low prices to specialized

bankruptcy companies, the so-called.

The "red" loans are today the loop that is tightening around the Greek banks. The "red" loans

reached 30% in the first half of 2014. Banker's' forecasts for the near future are dramatic, since

"Seeing" the reds make a new jump to 35% before they start to recede. In these circumstances,

the"haircut", at least in interest, is a one-way street. Households lost more than 30% of their disposable

income of recent years. At the same time, they have seen the value of their homes, which have

borrowed them, "sinking" at least 35%. Purchases are "frozen" even if they want to sell their home.

While a clear answer what to do with auctions has not yet been given.The haircut will be for interest

that has been recapitalised due to delayed payment of installments. That is, in the new regulation

programs, extra interest will be "cut" while consistent borrowers- who will pay on time the tranches of

the regulated loan- will have an additional "haircut" on a portion of the interest at the end of each year.
31
The "haircut" is the last chance for banks to refine balance sheets (they will certainly impose clauses on

the borrower that will not be consistent), but also for households to save their fortunes. The banks, if

they give them will write down losses, because they can get cash directly and "clean" their balance

sheets after deleting red loans. But for non-servants they have already calculated large bad credit

forecasts. With these forecasts, they have already "written off" a portion of these loans, so it is better to

lose 95% instead of "lose" 20% to 25%. In the first half of the year, loans over 90 days accounted for

30% of the total loan portfolio. This means that advances of more than € 62 billion have "hit" red. Also

25% of loans are settled- that is, 1 in 4 loans -, and of these 50% re-opens, since the borrower can not

respond to the lowest installment. On the basis of the Bank's notes for household and business loans at

the end of August, loans amounting to around 55.5 billion euros have been settled, half of which are

currently paid and the rest not. The government and banks' plan for the brave arrangements for "red"

loans to households and businesses.

The government and bank plan is based on three pillars:

1. "Minimum subsistence costs".

2. "Alternative proposals for loan regulation".

3. "Collaborating Borrower".

2.13 The Settings Today, the New Data and the Code of Ethics

However, the challenges of managing non-performing loans remain. After its successful

rescheduling and recapitalization, the banking industry is now called upon to optimize the management

of troubled assets in order to relieve the collaterals that are temporarily unable to service their debts and

to recover funds in the long run from the banks are locked in troubled loans. With the establishment of

the Government's Private Debt Management Board at ministerial level and the preparation by the Bank

of Greece of the supervisory framework for the management of non-performing loans as well as the

Code of Conduct for the management of non-performing private debts, laid the foundations for a
32
mechanism for resolving the non-performing debt of enterprises and households to banks. Improving

the management of problematic assets will have positive and knock-on effects and the ability of banks

to finance n healthy entrepreneurship by extending new credit, as it is linked to the proper and timely

repayment of existing loans. In addition, significant progress is being made in the recovery of claims of

banks in liquidation, which is also due to the relatively homogeneous manner in which the procedures

are applied. Beyond these actions, a catalytic factor for an improvement in the amount of recovery of

loans from overdue loans will be the consolidation of positive economic growth rates (which will lead

to both the increase in the rate of recovery of existing loans in arrears and the reduction of the

percentage of new loans in arrears). Enhanced economic activity will create a self-sustaining process of

reducing problem loans, as household and business repayment options will also improve.

2.13.1 Code of Conduct

New data for millions of borrowers as well as hundreds of thousands of businesses is created by

the Bank of Greece's troubled loan management code. This is an 18-page plan that is being put to

public consultation and is essentially the Bank's recommendations to banks on how to proceed with the

granting of mortgage loans not only to individuals but also to businesses. The plan provides for

particularly favourable arrangements for households and businesses to "revive" from the loop of "red"

loans. Indeed, some interpret that it leaves a window even for "haircut" part of the debts to the banks.

From now on banks and borrowers (depending on their financial profile and

to-date service of their loans) will be able to co-operate in order to achieve the best solutions for

repayment of instalments. Among the favourable arrangements will be the payment of a lower

instalment, the possibility of multi-year extension of the repayment time, but even the borrower's stay

in his home by paying a "rent" to the bank to which the home loan owes.

The Bank of Greece thus attempts to lay down conditions and rules in the field of loans while

introducing the institutions of the cooperative borrower and reasonable living expenses. It describes in
33
particular the steps, deadlines and minimum information that banks and borrowers have to provide each

other in order to properly assess the risks and repayment ability of each borrower, be it a natural person

or a professional or business, and seeks to find a more appropriate solution for this case. At the same

time, information is provided on how banks will safeguard their interests in cases where they are not

repaid by natural persons, professionals or businesses. In a press release, the Governing Council states

that: Law 4224/2013 provides for the establishment of a permanent mechanism for resolving the non-

servicing private debt. A central role in this mechanism is played by the Government Debt Management

Board, which, according to paragraph 1 of the said law, has the task of formulating policies, proposing

legislation and, in general, drawing up actions geared to the above-mentioned objective. The role of the

Bank of Greece in this mechanism is distinct and concerns, in particular, the adoption of a Code of

Conduct for the management of non-servicing private debts, a draft of which is attached. The

borrowers, for any disputes arising from the application of the Code and in pursuit of their out-of-court

settlements shall have the right to appeal to the Consumer Ombudsman, which is the third party under

Law 4224/2013. For the rest, the substantive settlement of disputes belongs to the courts.

The Code of Conduct refers to the concepts of "cooperative" borrower and "reasonable living

expenses", as defined by the decision of the Government's Private Debt Management Board as

provided by the above law. The Code of Conduct will include eligible living expenses, to be

determined in co-operation with ELSTAT, to be taken into account by banks, which will be required to

apply these rules before proceeding against any debtor's actions. It will also include provisions on risk

assessment procedures, the procedures for assessing repay-ability, binding rules of conduct of banks

with clear timetables, terms of communication between credit institutions and lenders, and will use the

definitions of "cooperative borrower" and "reasonable living costs" to be used against the decision-

making of banks with the provision of late payment / rescheduling loans. The Code has been drawn up

on the basis of best international practices, principles of International Insurers of Restructuring,

34
Insolvency & Vankrypse Professionals (INSOL), as well as the corresponding framework of other

states

- EU members facing similar challenges (Portugal, Cyprus, Ireland). The Code describes in particular

the steps, deadlines and the minimum content of information that reciprocal

banks and borrowers in order to properly assess the risks and repayment capacity of each borrower, be

it a natural person or a professional or business, and seek to find a more appropriate solution for this

particular case. The Bank of Greece has, in parallel, organizational requirements to be established by an

Act of the Executive Committee of the Bank of Greece in order to assess the extent to which banks

have sufficiently developed to meet the requirements of the Code. The Time Delay Procedure provided

by the code will be in five stages:

Stage 1: Contact with the borrower.

Stage 2: Collection of financial and other information.

Stage 3: Assessment of financial data.

Stage 4: Proposal for appropriate solutions for the borrower.

Stage 5: Protesting procedure.

All the list of alternatives that banks and borrowers can use to make a deal to regulate red loans,

particularly mortgages. This list is included in the Code of Conduct published by the Bank of Greece.

The Code refers in detail to alternatives for a final settlement of red loans.

- Voluntary delivery of mortgaged property under an arrangement with bank.

-The borrower can transfer his property to the bank and sign a contract for a minimum of 5 years. This

means that once the borrower has transferred his home he can stay there for 5 years by paying a rent

conventional with the market, which rent will be deducted from the entire loan. - The borrower will be

able to sell or rent the property in the bank or any other bank or private person to repay part or all of the

loan. This agreement may also be accompanied by the concession right of residence on the property for
35
a minimum period of 3 years.

-Transfer of the loan to another institution.

-A Replacement of an old loan with a new smaller balance

-Management in liquidation in the bankruptcy proceedings.

-Providing Insurance to satisfy the institution's claim.

-Traditional / Legal Actions beyond the collateralization of collateral.

The detailed list of solutions that borrowers can follow and banks include short-term settlement

solutions.

-Interest only during short term

-Drawed amortization instalments over a short-term period.

-Grace period

-Day Payment / Installments Dispatch

-Authorized Balance Processing

-Devaluation of delays

- Permanent reduction of interest rate or contractual margin.

-Shift interest rate change (eg from floating to fixed).

-Training the duration.

Long-term settlement solutions

Long-term regulatory solutions classify types of settlement solutions, the duration of the change

period of the repayment plan of which is equal to or more than five (5) years.

• a viable secured loan, which the borrower repays, based on the estimated future repayment and

• the balance of the loan, in which no interest is credited until a later repayment date. At that later date

or before, a reassessment of the repayment capacity shall be carried out. Determined either by the

estimated improvement in the borrower's repayability or by the estimated cash proceeds or other asset
36
with prudent settlement assumptions.

2.13.2 The term "cooperative borrower"

The logic of the "cooperative borrower" is central to how the relationship between banks and

their clients will work from 2015. If one is described as "cooperative", on the one hand, the bank is

obliged to offer him refinancing solutions for his debts and on the other he can not sell his assets. It

should be noted that in order to qualify as "cooperative", borrowers are not obliged to pay

all their debts. It is enough to show their interest in entering into talks with the banks in order to serve

their debts as far as their capabilities are concerned. And here comes the Bank of Greece directive to set

specific terms and rules to both parties (banks and borrowers) so that there are no gray zones.

From 1 January 2015, when the new permanent framework will come into force

redemption arrangement so that a borrower can leasing the property or the possibility of assigning it to

the bank and payment of rent for a certain period of time. Until the proposals of the Bank of Greece to

be implemented in total at the beginning of 2015, borrowers, both individuals and legal entities, can

take advantage of a series of new refinancing packages that banks have or will soon make available to

reduce their installments. These include, among other things, the increase in the duration of mortgage

loans even in 60 years instead of 40 today. In this way the dose is reduced even to one third compared

to the current data. Also, the possibility of collecting multiple debts from different sources (eg

mortgages, credit cards and consumer loans) to a new loan with an impoundment of an asset, even if it

has been denominated for other debts. In this way, the consumer credit rate is even reduced by half and

the installment falls accordingly. Also, total refinancing plans are planned to increase the duration and

reduce interest rates if the borrower puts forward other assets at his disposal, and especially for the

companies they will be allowed to repay part of their debts by paying shares, even if they issue new

especially for this purpose.

The new arrangements facilitate the sale of "problem" loans to foreign houses, who will then be
37
able to take legal action to collect them. Also, with the new framework, the abolition of the Katseli law,

the elimination of the possibility of derecognition of loans through court appeals and the period of

negotiation between banks and borrowers is being extended. In this way, the Bank of Greece attempts

to help banks improve the collection of NPLs prior to the European Central Bank's stress tests to be

held next November. Bankers hope that with the new programs a large percentage of loans will be

settled. Yet and with the two-year grace given in some cases, the banks will be strengthened, as under

the new code of conduct replacing the old loan with a new loan makes it easier to sell. At the same

time, it is easier to resell it to another bank or investment firm, resolving the hands of the bankers, but

substantially altering the conditions for borrowers. In addition to the title of the loan, the buyer- which

may be a debt collection company or a bank based abroad - also acquires the rights of the Greek bank

to the borrower. It can thus proceed voluntarily through the court to receive its claim.

Overall, the implementation of the Code aims to relieve the borrowers who are in a temporary

difficulty in repaying their obligations, but also in maximizing receipts from non-performing loans. For

better success, it is also envisaged to set up side-by-side support mechanisms as it is for example of

educational campaigns and a network professional consultants who will inform and direct borrowers to

make rational decisions. Beyond the major challenge of managing non-performing loans, the effort

already being made to collect claims of banks in liquidation. At the initiative of the Bank of Greece, the

banks are now being managed in a fairly homogeneous manner, as, apart from the establishment of a

special Clearing House, the special liquidators submit to the Bank of Greece for the evolution of

receipts data with a monthly frequency and a predefined format, which are evaluated in correlation with

quarterly data submitted. At the same time, its Bank Greece monitors on a constant basis the expenses

of the liquidators and the feasibility and the way of operational integration of individual or even all the

specific clearances are under consideration. The success of the strategy followed is also reflected in a

significant improvement in the magnitude of the receivables received, especially when considering the
38
fact that loans with a delay of more than 360 days account for 85.1% of the total loan portfolio of banks

in liquidation. The total receipts from loans outstanding from the start of the clearing up to 31.12.2013

amounted to EUR 324.9 million, ie the recovery rate was 8%, 12 showing an upward trend, especially

after the first quarter of 2013, whence the recovery rate was only 3.7%. Based on this dynamics and the

further improvement in the effectiveness of the procedures, the medium-term target for the recovery

rate is around 20%.The Greek banking system now has expanded opportunities in comparison with the

recent past. Banks can therefore be a lever for productive restructuring and the business sector, taking

into account the benefits for the economy as a whole.

2.13.3 "Fair Living Costs"

From 1 January 2015, therefore, borrowers will be able to renegotiate their debts and settle in

red loans, based on the minimum subsistence rates set so that they can serve the installments. Minimum

living standards will be in place from 2015 and will facilitate the negotiation between borrowers and

banks on the regulation of all types of loans. For an adult, minimum subsistence costs are set at € 537

per month for two adults with one child at € 1,126 for two adults with three children at 1,568 euros.

The calculation of reasonable living expenses was done by experts from the Ministries of Development

and Finance and was based on the data of the Family Budget Survey (HBS) conducted each year by the

Hellenic Statistic Authority. This research gathers detailed information from a representative sample of

households in the country, regardless of whether they have a loan or not, on their living expenses. The

goods and services consumed by households are grouped according to the amount necessary for living.

For this purpose a specific international classification scale (COICOP) is used. The monthly total of

these costs will act as a benchmark to assess the ability of each debtor to service his / her debt

obligations based on his / her income and after meeting his / her living needs. This framework seeks to

resolve out-of-court disputes between borrowers and consumers banks, and a bullion is provided so that

the two sides can come up with commonly accepted and sustainable solutions to loan servicing.
39
 Reasonable subsistence costs refer to the costs incurred by a household beyond those required

to secure a home. Hence, the amount of rent to secure the first home is added separately to the financial

data declared by the borrower. Every household is treated as a separate one case with different needs.

Therefore, the determination of reasonable costs will be done on an individualized basis, using specific

weighting factors depending on the composition of the household. Group 1: refers to the most basic

household subsistence costs, including food, clothing and footwear, operating costs of living, transport,

repair and maintenance of furniture and household equipment, household and personal care items,

information and education, telephony and postal services, health care items and services, education

services, social protection services and financial services. 2nd group: includes additional catering costs.

Group 3: In addition, it includes durable goods and appliances Group 4: includes additional expenditure

on alcoholic beverages and tobacco consumption, air travel, tourist and leisure services, culture and

sports. In accordance with the Banking Code of Conduct under consultation, the credit institution must

take into account the reasonable livelihood costs of the debtor when assessing the repayment

possibility. In particular, the bank should provide a Standardized Financial Information Statement, in

which the debtor will declare data on the household's cost of living, which will be related to the

determined reasonable subsistence costs. This information will be used in conjunction with other

elements to assess: its financial situation the borrower's current repayment capacity, the borrower's

historical economic behavior and the expected and expected repayment capacity of the borrower,

taking into account the level of reasonable living expenses. After this assessment, the bank will be

required to adjust it will be adjusted to the borrower's profile in order to continue servicing its loan. In

any case, if the debtor can not serve the provided arrangement, he reserves the right to appeal to the

Law 3869/2010, as amended by the Law 4161/2013 where the settlement of the debt will be

determined by court.

40
2.14 Non-performing loans at European level

The Cyprus debt crisis recalls that the problems in the eurozone have not yet finished, while the

economic recovery of the region is in a fragile and uneven track. However, Ernst & Young, in its

analysis, predicts that, without eliminating potential local problems, the painful phase for the financial

services sector in the Eurozone is almost over. Many key indicators for the sector are expected to

record a moderate rise in the coming months, and banks in particular will be reasonably in a position to

lend again, contributing to the advancement of the economic recovery in 2014. The most disastrous

phase of the deleveraging of banks has come to an end. The Eurozone banking sector, having shrunk by

€ 856 billion in 2012, declined by € 500 billion in 2013 and is expected to return to growth in 2014. All

assets have already been largely stabilized in Germany, France and the United States. The Netherlands,

while Italy and Spain are expected to follow. Borrowing to businesses and households declined by

1.7% across the Eurozone in 2012.

The shrinking continued in 2013, but at a reduced rate of around 0.5%. The large gap between

North and South in terms of bank borrowing costs remains and therefore regional economies will face a

more significant reduction in lending this year. In Spain, lending is expected to shrink by 5.1%, as

opposed to the positive pace growth of 0.8% in Germany and 0.6% in France. However, total euro-zone

lending is expected to begin rising again in 2014 at a rate of 2.9% including a mild growth of 0.9% in

Spain. Non-performing loans reached historically high rates in 2013, mainly due to the economies of

the region, according to Ernst & Young's analysis. Due to the increase in non-performing loans to

regional economies, their share in the Eurozone reached 7.2% in 2013, the highest rate since the

introduction of the euro, up from 6.7% at the end of 2012. The proportion of non-performing loans is

already decreasing in France, Germany and the Netherlands, but in 2013 it rose to 10.2% in Italy, while

it reached 12.8% in Spain.

The management of "red" loans is one of the most important bets on the banks. In this context,
41
banks set up specific targeted addresses and specialized staff to address the situation. At the same time,

they are preparing for pan-European banking unification. Despite the decline in the growth rate of "red"

loans, their growth is not going to stop until the country "zeroes" the recession. Based on the projection

of TTE data and published financial statements analyzed by PriceWaterhouseCoopers, NPLs on

September 30, 2013 amounted to approximately 35% of advances. That is, it was about 78 billion. With

regard to portfolios, the new rules require banks to categorize separately in the financial statements of

31/12/12 the loans of whose terms have changed at least once. Then the European Banking Authority

(EBA) as well as the ECB will decide whether there should be additional forecasts and what criteria for

part of the above loans in view of the pan- European simulation exercise that runs, EBA, and the

quality control of the loan portfolio, to be carried out directly by the ECB on a pan-European basis for

all banks. The biggest problem is in business loans, most of which have already been refinanced or

regulated at least once by credit institutions. The large increase in the ratio of non-performing loans to

total loans in Greece since 2008 appears to be compatible with international experience, argues

Eurobank's analysis. In the case of Greece, 90% of the cumulative increase in the ratio of non-

performing loans to total loans in the period 2008-2013 is due to the overall contraction of the GDP in

the corresponding period, while 10% to other factors. The bank provides for a return to the downward

trend of the ratio of non-performing loans to total loans in Greece from 2015 onwards, when peaked at

about 35%.

The growth of the Eurozone economy in 2014 will not be as strong as to support the recovery of

financial services, with the result that lending to businesses is reduced by € 211 billion compared to

2013, according to Ernst & Young forecasts. According to the report, which includes E & H forecasts

for the outlook for the eurozone's financial sector, this year will be difficult not only for banks but also

for their customers who hoped they could borrow funds for business their. The low growth of the

Eurozone in 2014 (the European Commission predicts growth of 1.1% of GDP while E & Y is more
42
conservative by forecasting 0.9% growth) and the cautious stance taken by banks in view of the double

rigorous scrutiny they will undertake from the ECB over the next few months have led the consultancy

firm to revise its corporate loan forecasts negatively. It also predicts that euro area business loans will

increase just 1.6% in 2014, instead of 3.8% expected last October. This is a dramatic change, which is

equivalent to providing € 211 billion less to Eurozone companies than the amount previously calculated

by R & D. And in this area the image of the market is not homogeneous, any other. The gap between

"Core" and "peripheral" regions of the Eurozone remains very large, since in 2014 it is anticipated that

those who need the most, ie the companies that have managed to remain upright after years of recession

in the southern countries, will find closed doors and expensive bank lending. According to the new

forecasts, total lending in Germany will grow by 3% -4% in 2013, while in France there is a 2% credit

expansion. In contrast, in the Netherlands, corporate loans are expected to decline by 2% in 2014, while

lending to businesses in the previous year rose by 2.9% despite the recession that hit the Dutch

economy. At least in the Netherlands in 2014, loans to consumers will increase by 4% and loans for real

estate purchase will be 1.5%. The picture changes dramatically towards the worst in terms of lending to

businesses in the South, in the so-called crisis countries, is yet another element that shows the

fragmentation of the financial system brought about by the crisis. For Italy, bank lending to businesses

is expected to remain at the same level as in 2013. In Spain, business credit is expected to contract

further by 3.2% on an annual basis, home loans reduced by 3% and consumer loans 2.4%.

Cumulatively, as of 2008, bank lending in Spain has fallen by 35% (!), As Spanish banks have faced

the effects of the bubble bursting in the real estate sector and have been hit by the double recession in

which its economy has fallen due to the measures austerity that governments have had to adopt from

2010 onwards.

A Eurobank report reports that 35 percent of non-performing loans are projected at a 35 percent

shock. According to her analysts who have used troika models, de-escalation of red loans is expected
43
from 2015. Eurobanc is studying the non-performing loans in the world before and after the outbreak of

the global financial crisis, with particular emphasis on developments which have taken place in these

countries have been the focus of the eurozone debt crisis. According to the Eurobank survey, at

international level, the ratio of non-performing loans to total loans (NPL ratio) a significant decline for

the overwhelming majority of (expanded sample) of 103 countries over the period 2000-2007. This

positive development was interrupted violently following the outbreak of the global financial crisis,

with the average ratio of non-performing loans to total loans showing a significant increase over the

two years 2008-2009. Out of a total of 97 episodes of economic recession were identified in the

expanded sample in the period 2000-2013, the ratio of non-performing loans to total loans began to

deviate from the first year of return to positive economic growth rates in 61 cases, while in 13 others,

this development took place one year after the recession. In the remaining 23 episodes of recession, the

return of the relative ratio in a downward trajectory was delayed from 2 to 4 years.

The analysis of the study documents the anti-cyclical behavior of non-performing loans, as in

downturns borrowers face increased problems in servicing their obligations to banks due to rising

unemployment rates and compression of disposable income. On the contrary, in times of economic

growth there is a relative improvement in the financing conditions and an increased demand for loans

to cover consumer and investment costs. Other factors identified as important (although to a lesser

extent than the economic cycle) for the evolution of non-performing loans include: lending rates, the

nominal effective exchange rate (mainly for countries with a floating exchange rate and a high level of

foreign currency lending ), property prices, loan-to-deposit ratio and total loans as a percentage of GDP.

In the case of Greece, 90% of the (cumulatively interpreted) cumulative increase in the ratio of non-

performing loans to total loans in the period 2008-2013 is due to the overall contraction of GDP in the

corresponding period, while 10% to other factors. In conclusion, the large increase in the ratio of non-

performing loans to total loans in Greece from 2008 onwards (by approximately 24.8 percentage points
44
to 29.3% in June 2013) appears to be compatible with international experience, substantiating the prime

role played by the domestic economic downturn in its great rise. Indicatively, the case of the Baltic

States (Estonia, Latvia and Lithuania), which recorded an average fall of their real GDP in 2009 by

15.6%, while the average ratio of non-performing loans to total loans increased in just one year by

340%!

45
CHAPTER 3: ECONOMIC CRISIS, CAUSES AND RESULTS

3.1 Introduction

After an unusually long period of economic stability and growth, the global economy was faced

with a major financial crisis, which began in the US financial sector in 2007 and expanded around the

world. This crisis came to our country with a delay, both because the Greek economy is not very open

and therefore very exposed to international shocks, and because its banking system did not have the big

problems that banks had in other countries. The crisis in our country came from the public sector, with

the budget deficit in 2009 exceeding 15% of GDP and the debt rising as a percentage of GDP to

unsustainable levels. The fiscal crisis has found the Greek economy in the face of another crisis, that of

the current account. With the competitiveness of its products and services declining in recent years and

reducing savings, the current account deficit, as a percentage of GDP, has been among the highest in

the world. In the turmoil of the international financial crisis, the Greek economy was faced with a crisis

of twin deficits. Under the pressure of the markets, developments were rapid. In order to avoid

bankruptcy, the Greek government signed the Memorandum of Understanding with the European

Union, the European Central Bank and the International Monetary Fund, which ensured the financing

of the budget deficit, but provided a tough fiscal adjustment and structural change.

3.2 The concept of "economic crisis"

An economic crisis is a phenomenon where an economy is characterized by a lasting and

appreciable decline in its economic activity. When we say economy activity refers to all the

macroeconomic variables of the economy, such as employment, national product, prices, investment,

etc. The most important indicator of economic activity is investment, which, when fluctuated, drives

with them and all other financials. The economic crisis is one of the two phases of economic

fluctuations, namely the downfall phase, when economic activity is in a continuous contraction

(European Commission, 2009). In the last year, the global community faces a major financial crisis
46
with a focus on bank failures and in particular the inability to service home loans, soon became

epidemic. The financial crisis has expanded rapidly in developed countries and then across the world,

with dramatic effects on the banking system and businesses. According to the International Monetary

Fund, the crisis is shifting vigorously to the real economy, resulting in the recession and decline in

employment (Birdsall, 2009). The country 's response was immediate in terms of taking measures for

tackling the crisis. These measures, although differing from one country to another, have had a

common goal of improving liquidity, mobilizing investment to revive the economy and contain

employment. The crisis in our country is expected to be more profound and than in other countries of

the European Union, precisely because its structure and structural problems are not only different, but

they are maintained and everyday they become bigger and stronger, rather than being blunted, under

and under the conditions of the international crisis (Busch, 1985).

3.3 Factors that led to the crisis

The factors that contributed to the financial crisis are multiple. Though the widespread use of

complex titration products was seen as the main cause, history proves that there is not just one cause of

the crises. Most crises often have their root in the deficiency, for various reasons, of risk management.

It is a fact that the crisis was created by a combination:

 macroeconomic conditions and conditions in international markets (eg high growth rate of GDP at

international level, low interest rates, high liquidity, significant credit expansion, rapid growth financial

innovation through securitization and credit derivatives, significant financial leverage in specific

"pockets" in the financial sector),

 "loose" or incorrect credit criteria, notably in US mortgage lending,

 Effective corporate governance, especially in terms of risk management, and inadequate supervision

by the Boards of Directors (BoDs), insufficient control by the competent supervisory authorities.

47
3.4 The Greek Reality

Six years after the outbreak of the international financial crisis of 2007, which has failed to fully

decompose the global financial system and drag the world economy into a stagnation, Greece faces its

own financial deadlock. The global crisis was transformed at the end of 2009 into Greek and European,

as it sensitized the rating houses and markets to the imbalances of Greece and the imperfections of the

eurozone's construction. At the end of 2009 , our country has suddenly gone through the virtuous circle

of low interest rates and high growth in the vicious circle of high interest rates, refusal to borrow and

indefinite recession. Within a few months markets changed views on the country's economic outlook

and the sustainability of its debt, which is booming. At a different rate, the Greek society is gradually

discovering that yesterday it is past, that the ever-increasing prosperity of the past fifteen years is not a

stable and easy property, and that rebuilding the economy on new solid foundations requires serious

structural reforms in the functioning of the state, in the relationship of wages and productivity of

citizens, but also, above all, in imposing a competitive framework on the multiple trade unions that are

in the name of a tried and tested economy. Restarting requires immediate and abrupt shattering of past

habits, political maturity and will, as well as significant sacrifices by all liters. In today's transition

period, the financial sector, whose behavior affects, plays a key role across-the-board all economic

operators, businesses, households and the state.

3.5 A flashback of the crisis in Greece

Although the situation appears to have stabilized to a large extent from the beginning of 2013,

there are still strong concerns about the economic situation in Greece and the likelihood of the situation

in the Eurozone deteriorating. Given the situation, it is unlikely that new investors will enter the Greek

banking sector before the stabilization of the Greek economy and concrete data on growth. 2013 is a

year-sign, signaling the completion of major changes and halting the Great Depression. The adjustment

of the economy was not completed in 2013. It should be continued to consolidate the changes that have
48
been made and create the conditions for growth, reducing unemployment and improving incomes.

However, at this time- in 2014- when a cycle is closed, it is worthwhile recording the course to date,

assessing actions and omissions and, above all, drawing lessons for the future.

2008-2009: The crisis in Greece

The global financial crisis began to negatively affect it as well Greek economy, especially since

October 2008, when the crisis deteriorated dramatically, causing a significant weakening of

expectations. The banking system began to face serious liquidity problems as credit rating downgrades

restricted banks' access to the international interbank market and later to other sources of liquidity. The

Greek banking system is experiencing unprecedented challenges from the escalation of the Greek

financial system a crisis that tests the strengths of the system under deep recession, restructuring of

public debt and shrinking traditional sources of liquidity. The Greek financial crisis is leading the

economy to recession and businesses, due to the subsequent decline in demand and over-indebtedness

of many of them, unable to meet their obligations. Banks on the one hand are urged to find ways to deal

with the above problem, because it leads to increasing mistakes which in turn worsen their capital

adequacy and reduce their effects. The state, on the other hand, monitors developments through its

means and intervenes in the process with dubious results.

It is well known that since 2009 Greece is experiencing a deep economic crisis, which

seriously affects the economic situation of households. The large increase in unemployment, the drop in

wages and the increase in taxation have shrunk household income. For households with a loan, the

financial pressure of households has increased considerably, as is shown by the rising rate of overdue

loans.

2010-2013: The crisis in Greece

For the Greek economy, 2011 was, as expected, a year of particularly negative developments,
49
with a concentration of international interest on how to handle high public debt and political

uncertainty. In 2011, the Greek economy was on the downside of economic activity for the fourth year.

GDP declined by 7.1% (2010: -4.9%), with the main features being the significant drop in domestic

consumption, private and public, and the sharp rise in the unemployment rate to 17.7% from 9.5% in

2009, with an accelerated trend. In this difficult situation, the implementation of the economic

adjustment program brought first positive results, with the reduction of the general government budget

deficit in 2011 by six percentage points compared to 2009, to 9.4% of GDP. In this economic

environment the Greek banking system faced unprecedented challenges and intense uncertainty. The

continuous downgrades of the credit rating of Greek banks, as a result of the corresponding

downgrades, the continuing their exclusion from the international capital markets, as well as their

liquidity limitation due to the strong outflow of deposits observed in the Greek market during 2011

were mainly offset by the combined liquidity-enhancing measures on behalf of the Greek State, the

European Central Bank and the Bank of Greece's Emergency Liquidity Facility (ELA). To deal with the

large economic imbalances, continued reception fiscal adjustment measures, while in February 2012

the second financial support program from the European Union, the International Monetary Fund and

the European Central Bank, which included not only fiscal adjustment measures but also a series of

structural changes, as well as a voluntary private sector bond exchange program, which was completed

in March 2012. The aim of the program is to limiting budget deficits and gradually lowering the high

public debt, restoring the competitiveness of the Greek economy and regaining market confidence.

2012 was another difficult year for our country and its banking system.

While the international economic environment is gradually recovering, Greece is in recession

for the fifth consecutive year, with an appreciation for a reversal of the economic climate since 2014.

At the same time, when the voluntary PSI + banks participated in an amount of bonds and bond loans

of around € 50 billion, a size that was about 25% of the total perimeter of the program or their actions
50
contributed decisively to the success of PSI + and the high final participation rate of individuals

(96.6%). However, this voluntary contribution to the State had enormous costs for the Greek banks.

They were forced to record estimated losses (before taxes) of approximately € 38 billion: Both because

of their participation in PSI +,• and due to (reduced) valuation of new government bonds based on their

current value. Also, in December 2012, Greek banks participated in the redemption of bonds following

the Eurogroup's decisions on Greece on 27 November. According to the relevant calculations, the

Greek banks participated with a volume of bonds approximately € 14 billion, a size that was about 45%

of the total of the program's total, contributing to a maximum of € 49.1 billion in the second tranche of

the second installment, under the second Greece's economic adjustment program agreed in February

2012. Despite these problems, banks showed and continue to show remarkable strength. Under the

current circumstances, the challenge for our banking system has four dimensions:

(a) complete its recapitalization process by the end of April 2013, restoring depositor and investor

confidence,

(b) continue to contain its operating costs,

(c) be shielded from the impact of increased non-performing loans due to the deep recession, and

(d) to support the support of the real economy of our country and its international activities.

Banks operating in our country are ready to face these challenges by continuing to support, as

much as this does not arise in the public debate, businesses and households in our country that respect

business ethics and try to meet their obligations. During the current unfavorable economic

environment, banks operating in Greece have consistently made extensive arrangements for each

category loans and debts to them, housing, consumer and business. On a continuous basis, specific set-

up programs are being set up and implemented by all banks

- to a bank

- in all categories of debtors, with particular attention to the facilitation and alleviation of those most
51
affected or affected by the crisis, such as the unemployed, the redundant, the retired and those who

have suffered a severe reduction in their income.

3.6 The case of Greece

The result of the financial crisis

The economic crisis leads to precarious work, unemployment, and eventually poverty that leads

to the social exclusion of more and more groups, which is a source of various mental disorders.

(Liaropoulos, 2010). The effects of the economic crisis have been visible since 2008. In 2008, net total

investment declined to around 8% of GDP, ie by 4.5 percentage points over 2007. This marks both a

fall in income and a postponement of the implementation of private sector investment projects in view

of the decline in demand that characterizes the economic crisis. In addition, the downturn in

investment reflects the difficulties of accessing borrowing faced by businesses. During the first period

of the crisis, until the mid-2009, when the banking crisis intensified, all the governments of the

developed capitalist countries funded the rescue of the financial system, resulting in a large swelling in

the budget deficit and public debt. In Greece, a total of 28 billion euros were earmarked for direct

banking support and guarantees. In another wording, due to the crisis a part of the private debt was

converted into a public sector (Savas, 2012). The growth dynamics of the Greek economy in 2000-

2008, which recorded an average annual growth rate of 4% versus 1% in the Euro Zone, suspended in

2009.

The biggest global financial and economic crisis of the latter 80 and the deep recession in the

world economy and international trade in 2008 and 2009, coupled with the major problems of over-

indebtedness and the downgrading of the Greek government's creditworthiness, eventually led the

Greek economy to lower growth in 2008 and a recession 2009. The role of the banking sector in the

reconstruction and recovery of the Greek economy was decisive. The rapid completion of the

recapitalization process, along with the most consistent implementation of the adjustment program,
52
create a new, more positive environment, which has allowed the gradual recovery of confidence and the

reinforcement of entrepreneurial action that will bring the restoration of the Greek economy. When the

pressures on the Greek banking system in liquidity and capital terms peaked in 2012, the Eurosystem

ensured the necessary liquidity, thus contributing decisively to the effort to restore confidence and

stability of the system. For Greece, 2012 was the fifth consecutive year of deep recession and tight

fiscal adjustment. A very significant improvement in fiscal aggregates and a reduction in the current

account deficit was achieved, but this had a heavy economic and social cost in terms of growth, living

standards and employment. In 2013, although it was another year of recession for Greece, the Greek

economy began to create the conditions for exiting the recession, with now seeing a return to a positive

growth rate from 2014. To do this, it is necessary fiscal consolidation measures to be accompanied by

structural reforms as well as policies that will stimulate the growth prospects of the Greek economy.

3.7 The causes of the economic crisis in Greece

The current crisis in Greece is the result of the large fiscal debts and deficits accumulated since

the 1980s and contributed to shaping them at the current juncture at levels that are not sustainable on

the basis of international experience. Greece's fiscal crisis is different from what the other eurozone

Member States are facing in terms of its root causes. The crisis in other countries, such as Ireland and

Spain, was mainly the result of over-expansion their banking system to "investments" that have proved

to be extremely damaging. These countries have been forced to rescue their domestic banks, pledging

the rescue costs to their public debt. In Greece, the cause of causality was the very opposite. Excessive

government borrowing eventually led to an unprecedented fiscal crisis, which in turn brought about:

• reducing economic activity,

• the exclusion of Greek banks from the international interbank market due to the continuous

devaluations of the Greek government's credit rating,

• the "haircut" of Greek government bonds,

53
• the strong reluctance of savers to be able to secure their deposits, and

• the reduction of bank liquidity and equity.

Banks are not responsible for the crisis as elsewhere, and that's because Greek

banks have followed, over the course of our country's economic development (1995-2008), a prudent

credit policy over time. The unprecedented worsening of the global investment climate at the end of

2008 amid the recent (2007-2009) international financial crisis has found Greek banks with almost zero

exposure to "toxic" international financial products or other high-risk investments, which were the

main cause of the international crisis. On the contrary, its credit institutions

our country had concentrated on traditional banking, in financing of the Greek economy and their

international expansion. Their investment initiatives were taken with a measure based mainly on the

deposits of their private clientele. The Greek banks avoided practices of irrational financing for

households and businesses. Instead, they followed disciplined policies for housing, consumer and

business loans and credit. The total private sector borrowing from the domestic banking system as a

percentage of the country's economic activity did not exceed the corresponding European average

and is much lower than in countries such as Spain, Ireland, Portugal, the United Kingdom or Denmark,

particularly in the area of consumer and housing credit. The fact that derogations have been observed in

certain specific cases (such as, for example, for some time in the field of consumer credit), does not

reverse the general trend resulting from the abovementioned comments and which has been confirmed

by a specific diagnostic study of the bank's credit portfolio by the international Blackrock company.

3.8 Extent and Evolution of bad debts and red loans today

Since 2008, the banking system has not only been faced with a double crisis. On the one hand,

the deterioration of the global economy due to the financial crisis and the debt crisis of the Greek

government on the other. As expected, the general worsening of economic conditions has tested the

ability of Greek banks to meet the challenges. Today, 75% of households have been hosted by Greek
54
households "in the red", according to a survey released by the GSEE Consumer Employees' Union.

According to her research, late credit card debt reaches 15%, and consumer loans- two and a half years

ago it was at 10%

- today they have sprung up to 65%. In particular, loans with a permanent delay amount to EUR 65

billion, while loans with a temporary service difficulty of at least EUR 35 billion are in difficulty. The

average debt per borrower is over 94,000 Euros. The first loans are 61.6% of the loans granted,

followed by the consumer by 31.2%. 25% of borrowers are aged between 30 and 40, 27% 40 to 50 and

29% 50 to 60 years old. 66.7% are married, 17.9% are divorced, 13.3% are single, and 2% are

widowed. In terms of geographical distribution, the highest indebtedness rate

is recorded in Athens (44%), followed by Thessaloniki (18.4%) and Chania (14.4%). The Union also

claims that our over-indebted fellow citizens are depressed 45% in urban centers and a higher

percentage in the region. Those who have received a mortgage from 2008 onwards do not

they can serve it, and if there is a lifting of the protective framework for the first home, there is a risk of

a "flood of auctions". There is also an imbalance between the amount of the loan granted and the

income presented by the borrower, which is exacerbated. Since 2011, 250,000 bank loans have been

granted to individuals with an annual income of just 9,000. Today, 35.3% of these borrowers are

unemployed. 26.1% are private employees and 16.6% are retired. A total of more than 2 million arrears

at the termination stage is the tragic account of the crisis for households, professionals and small

businesses with debts from housing, consumer and business loans of up to € 1 million. These are loans

that have ceased to be repaid over a period of more than three months, limiting the total number of

loans that are still being served to just about 5 million, including the regulated loans amounting to

around 1 million. 2 million delays: 800,000 consumer, 900,000 credit cards, over 100,000 small

business loans, and 300,000 home loans. In 2013, some 70,000 borrowers were added to the long list of

inconsistent debtors, which now number 300,000 households, which delay their mortgage loan for
55
more than three months. Among them, a significant number of them have completely abandoned their

effort, mainly due to total weakness and less reluctance. The increase in delays in housing loans has

shrunk the number of those that continue to be serviced even after adjustment. So at the end of 2013,

the housing mortgages are down from 800,000 from 860,000 in early 2013 and 960,000 in early 2012.

In 2010, the outstanding loans in the private sector were

257.5bn, the balance of loans decreased by 40bn or 15.5%. By end-December 2013, the balance of

loans to businesses and households stood at 217.5bn. In the three-year period 2010-2013, loans to

individuals declined by 20 billion or 16.3%, while loans to corporations declined by 17 billion or

14.7%. Last quarter of 2013 we have positive credit growth rates, and in 2014 loan loans are negative,

they expect the third quarter to stabilize and the latter to an increase in lending. The percentage of non-

performing loans was, on average, to around 30% at the end of 2013, while it is expected to move

slightly higher in the first quarter of 2014 and peak at the end of the year. In Greece, it is estimated that

due to the circumstances, a percentage of restructured loans, especially in business, deserves particular

attention and should perhaps be included in NPLs. According to foreign house calculations, based on

the results of a year, the percentage of NPLs is increased to 48%, from 30%, if all the loans are

devalued and the value is impaired. The restructured loans of Greek banks at the end of 2013 reached,

on average, to 13% of the total, compared to 11% in 2012. For Piraeus Bank, the percentage of

restructured loans stood at 15%, the EIF at 13%, Eurobank at 11.5% and Alpha Bank 11%. They

exceed 75 billion euros and are estimated to exceed 85% by the end of 2014. Non-performing loans

remain a source of concern and constitute it bigger "hoarseness" for Greek banks- and not only -. Banks

continue to be burdened by the strengthening of NPLs, but the positive thing is that the rate of new

non-performing loans is slowing. That is, the amount of new loans not serviced is less than the

corresponding amount of the previous quarter. Fewer non-performing loans means less provision. From

the when the economy returns to a positive rate of growth, 2-3 quarters of the decline in non-
56
performing loans will begin.

According to the latest data from the Bank of Greece, the non-performing loans from businesses

and households have climbed to the zenith as they peaked again at the end of the first quarter of this

year, exceeding € 71 billion. This is one third of the total bank loan portfolio, which amounted to EUR

215.9 billion at the end of the quarter. The 39 billion euros are "red" business loans. Analysts say,

however, to slow the pace of new bad debts, awaiting the stabilization of red loans at the end of the

second quarter of the year and the beginning of gradual de-escalation from the third quarter onwards.

Negative data for the first quarter were the ongoing deleveraging, ie the decline in lending to the

domestic private sector. According to the Bank of Greece, the credit crunch fell to 4.1% in the first

quarter. The signs of a slowdown of new bad debts and new loans in arrears stem from the results of the

first quarter announced today by National Bank and Eurobank. While Greece's red loans are set at

28.4% in Greece and Eurobank at 30.9%, analysts estimate that non-performing loans have not peaked

yet. Red loans in Greece will peak at 37% of the total at the end of 2014 or early in the year 2015,

Moody's predicted at the latest estimates of 33% for the industry as a whole. In particular, National

Bank's results show that new bad debts have been declining for seven consecutive quarters at group

level. In the first quarter they fell by 38% yoy and amounted to € 380 million (In Greece they were

down by 32% yoy). The result was reduced Group- wide provision of 15%, of € 362 million, versus

EUR 428 million in the first quarter of 2013. The Group's over 90-day loan portfolio stood at 23.0% at

the end of March 2014, compared with 22.5% at the end of 2013. In Greece, loans in arrears For the

Eurobank, total loans in excess of 90 days amounted to 30.9% of the portfolio at the end of March

2014, from 29.4% in December 2013.However, new loans in excess of 90 days fell in Greece by 11.4%

to 599 million, from 675 million in the fourth quarter of 2013.Improved compared to the fourth quarter

of 2013 results showed Piraeus Bank for the first quarter of the year, while at the same time it was

announced that General Bank returned to profitability after 10 years of losses. The key objectives of the
57
bank are the active and mutually beneficial management of problem loans and the support of new

healthy business plans. It is noted that due to the fact that a large part of the consolidations with the

banks acquired by the group took place in 2013, the figures for the first quarter are not comparable to

those of last year. Provisions for loans amounted to EUR 481 million or 2.6% on pre-financing loans

forecasts and adjustments from 3.6% in the 4th quarter of 2013, benefiting from a significant reduction

in the production of new loans in arrears. Latest estimates raise the amount of red loans in Greece to 71

billion at the end of the first quarter. This is 33% of the total, from 31.8% at the end of 2013. The 39

billion euros of non-performing loans are business. In its report, Nomura estimated that non-performing

loans would continue to increase in the remainder of 2014, however, at reduced rates. Risk costs will

remain high in the first quarter of 2014, but below the levels of the fourth quarter of 2013. Of course,

banks continue to be burdened by their aid "Red" loans, which reach 33% of total loans. However, the

positive is that the rate of new non-performing loans is slowing from quarter to quarter. That is, the

amount of new loans not serviced is less than the corresponding amount of the previous quarter. Fewer

non-performing loans means less provision. Once the economy returns to a positive rate of growth, 2-3

months later, the decline in non-performing loans will begin. In this context, it is expected that the fall

in bad debts will begin either from the end of the year or, more likely, from the first quarter of 2015. It

is well known that the economic downturn and the consequent fall in income and profitability, tax

burden have aggravated the financial situation of households and businesses. The ratio of overdue loans

to total loans was increased dramatically. From 5.1% in 2008, overdue loans amounted to 31.6% at the

end of 2013. The growth rate of overdue loans increased significantly in 2011 and 2012 due to the

worsening recession and generalized uncertainty with an impact on trading behavior. In 2013, the

highest rate of overdue loans was seen in consumer loans (including credit card exposures and

overdrafts) at 47.6%, followed by business loans (31.6%) and housing loans (26.1%) with the lowest

percentage of delay. In absolute terms, private sector loans to the private sector grew in December 2013
58
to:

Mortgage: EUR 18,449 billion.

Consumers: EUR 13,495 billion.

Business: 32.612 billion.

Freelancers, farmers, sole proprietorships: 4,389 billion Euros.

Total: EUR 68,945 billion.

According to all estimates, and in the year 2014, the increase will continue

loans in arrears. Growth is expected to be lower than in previous years. The peak is expected in 2015,

on the assumption that GDP growth and income stabilization will not further decline (by increasing

employment and reducing unbureaucratic tax burden). Estimates indicate that in late 2015 the amount

of overdue loans will be 75-80 billion euros.

Loans in arrears per bank

* The National Bank shows overdue loans of 17.12 billion of NBG's loans is 22.5% in the group.

* Alpha Bank has loans in arrears of € 20.9 billion, of which € 18.3 billion in Greece and € 2.6 billion

abroad. Loans in arrears account for 33% of loans.

* At Piraeus Bank, the ratio of over 90 days of overdue loans to total loans to the Group amounted to

36.6% at the end of December 2013, while in Greece the corresponding Delay Index reached 37.0% at

the end of 2013. In other words, absolute figures of € 28.16 billion.

* Eurobank shows overdue loans of 27.7% of the total, ie 14.82 billion euros.

Loan Settings

The above evidence confirms that banks have almost emphasized

exclusively in loan arrangements in 2013, as it is estimated that up to now 250,000 mortgages have

been settled, amounting to 18 billion euros. It is estimated that 80 billion business loans are being

restructured. At the same time, loan restructuring by banks and generally acknowledged delays, which
59
appear as up-to-date restructurings and usually 80% are not repaid, reach 12 billion. From these data,

all delays in bank loans will exceeds 70 to 75 billion euros in the first quarter of the year.

Forecasts

The burden on the quality of the commercial bank's loan portfolio has led to an increase in the

coverage ratio of deferred loans from accumulated provisions. According to the Bank of Greece, the

last three years have tripled. According to the BlackRock report, published by the Bank of Greece, it

shows that the cumulative Greek bank forecasts for bad debts were about 24 billion euros. For

consumer and housing, banks have taken significant forecasts, but for business loans they have not

followed a similar aggressive policy. Of course in the last two months and under the pressure of the

troika in the enterprises are made. The most significant development is the significant return on deposit

- which, following a steady decline of € 32 billion in 2010, and € 45 billion in 2011 - began to rise after

June 2012 and by the end of 2012 amounted to € 11 billion, reflecting the gradual re-establishment of

confidence in the Greek banking system and the Greek economy in general, a trend that continued in

the first quarter of 2013.

3.9 The Challenges and the Role of the Banking System Today

Today the structure of the banking landscape is completely different from the one at the

beginning of the crisis. Excessive capacity has been largely eliminated and fewer but stronger banks are

operating, and the first benefits of synergies are already visible. The Bank of Greece, as a supervisory

authority, has repeatedly argued that the size of the Greek economy and the current economic climate

require fewer and more robust banks and therefore more resilient to economic turbulence. The

inadequacy of financial resources is one of the most important problems of the economy today. But this

deficiency not only from the limitation of bank financing. It is due to a combination of factors, many of

which existed before the crisis and formed a pattern of growth that was overly reliant on bank lending.

The banking system broadly followed the trends in the economy and society to meet the
60
growing demand for borrowed funds by businesses and businesses households. With the beginning of

the 2009 fiscal crisis and the great recession that followed, both demand and loan supply declined

sharply. Under these circumstances, the weakening of banks' lending capacity was inevitable, as the

financial crisis strongly influenced the country's creditworthiness and, by extension, the domestic

banking system. Today, the banking landscape in Greece has changed. The recapitalization and

redeployment of the banking system gradually restore confidence and create the conditions for

strengthening in the medium term the granting of new appropriations in economy. However, many

factors continue to affect lending to new loans, at least in the short term, limited. The main ones are:

First, net inflows of deposits, critical for banks' ability to channel resources into the economy,

remain low. Secondly, the ratio of loans to deposits needs to be kept at a conservative level. And this

reason has been disturbed by the loss of deposits during the crisis. Thirdly, compared to other countries,

the short- term funding received by Greek banks from the Eurosystem remains high and should

gradually be limited to more reasonable levels. Fourthly, the confidence-building gained by the

recapitalization is mitigated by the concern caused by the accumulation of overdue loans. This

discourages new credit, as it signals that the credit risk is very high, deprives banks of their resources

which they could channel to new loans and creates the possibility of future write-downs of the bank's

capital base, thus maintaining the need for commitment funds for provisioning. The issue of the

problem loans to businesses and households must now be addressed systematically. Significant actions

are already taking place on the part of the banks and the State in this direction. Improving

macroeconomic conditions, if continued, will strengthen confidence in the country and its banking

system and allow a gradual normalization of credit expansion in the medium term. In the short term,

however, the possibilities for credit expansion will remain limited.

The banking system can now play a new role and be a lever for the restructuring of the business

sector as it is the only branch of the economy that has been completely redesigned and recapitalised.
61
And of course, it should not be overlooked that such an extensive transformation could not have no

serious cost, especially for shareholders. But this process largely eliminated overcapacity

capacity and the new banking system is based on more solid bases, according to the needs of the new

growth model. It is worth noting that no other sector has been restructured in this or similar scale,

despite the fact that the unprecedented conditions of economic crisis made it necessary. This bank

experience can prove valuable to businesses in other sectors and sectors of our economy. Today, banks

are being called upon to make a substantial contribution in an attempt to rebuild the productive

potential to create the new sustainable development model that the country needs. Today, the provision

of limited banking liquidity should be directed to the real economy in a way that maximizes its growth

potential. Bank policies should be geared towards a new framework for credit and risk management.

This will avoid trends were observed over the past decade, when much of the credit was directed

towards residential and consumer investment. This means that new credits should now be directed to

dynamic businesses with a high degree of extroversion and promising growth prospects. After six years

of deep recession, the Greek economy shows that it can recover.

In front of us now lies the great challenge of turning the ongoing stabilization into dynamic

growth on solid foundations. This is today the main national goal, the only way to ensure that sacrifices

in recent years are not lost. In this effort, companies and sectors that will be oriented to new products

and markets will take the lead and will conquer the whole economy in a virtuous circle of growth. In

this difficult course, the banking system can and should effectively support the restructuring of the

economy towards a new development model. The Bank of Greece, as supervisor of the bank system, it

will seek to create the conditions that will allow it.

3.10 Developments in the Banking Sector

The banking sector in Greece, as opposed to what has been observed in other countries, not only

did not cause the crisis, but was the recipient of unprecedented challenges, to which it cope with the
62
coordinated actions of the Bank of Greece and the State. The first shocks were felt with the outbreak of

the international financial crisis in 2008, and the pressure was further exacerbated by the domestic

financial crisis. It is an achievement that despite the pressures the stability of the banking system has

not been disturbed, and during the necessary reorganization of the bank, no saver has suffered any

impairment of his depositions. The next crucial step for the Greek banker is already under way sector

based on a long-term sustainable business model, which will help to redefine and support the new

growth model of the Greek economy in the medium term. In the first years of the crisis, the banks have

been bad and the merger initiatives have not succeeded. After the impact of the restructuring of the

public debts on their capital base, the need for redeployment has become imperative strengthening the

industry. This was done through acquisitions, consolidation measures and the recapitalization process.

The quality of the loan portfolio showed further deterioration, though the growth rate of non-

performing loans declined in the course of 2013. The ratio of overdue loans to total loans amounted to

31.9% at end-December 2013 from 24.5% at the end of December 2012. The deterioration was

comparatively housing loans (2013: 26.1%, 2012: 21.4%) and higher in corporate loans (2013: 31.8%,

2012: 23.4%) and consumer credit: 38.8%). The rate of coverage of loans in arrears from accumulated

forecasts remained virtually unchanged (2013: 49.3%, 2012: 49.1%).

3.11 Difficulty at paying the loans

Restructuring moves, with longer loan durations and lowering the instalment, are the ones that

prevent delays, since loans are regulated, remain "alive" and do not go through formal delays. The

management of bad debts is at the most critical point because, as a result of the recession, the customer

base is unable to meet its obligations. Almost 30% of all types of loans have been settled, including

even the smoothest interventions, which are also made to informed borrowers.

Banking executives remain concerned about the possible consolidation of the so-called

moral hazard that will ebb the bad debts, creating expectations of non-repayment of liabilities. What is
63
crucial, they stress, is to have a framework that will be functional, since the Katseli law has failed to

meet the expectations of even the borrowers who are unable. Difficulty or even weakness in the

repayment of the loan accounts for 84% of households, according to a survey by PublicIssue, which

records the biggest difficulties for families with children and households from the lower social strata.

Research that does not report a sample of respondents is based on pan-Hellenic

telephone surveys and the research base of the company for the period 2001-

2013 to compare the data. According to the findings of PublicIssue for 2012, 4 out of 10 households in

Greece (41%) have received a loan from a bank, while the projection of this percentage to the

household of the country is equivalent to about 1.5 million households. In the majority of cases, this is

a mortgage loan (25%), followed by lower consumer rates (10%), loans for purchase

car (4%), professional (4%) and repair (3%).

By type

There is a correlation between the existence of a loan and the type of household, as the

percentage of married children with a loan is 45%, married without children 43%, unmarried 41%, and

unmarried 31% alone. Households with loans originate mainly from middle (44%) and lower (42%)

social strata, and a lower percentage of upper-urban (27%) strata.

By region

The existence of loans is probably a case of urban households, according to the Public Issue

survey. In the major cities of the country, almost 4 out of 10households (44%) have a loan in the bank,

while the equivalent rate for semi-rural and rural areas is limited to 36% and 35% respectively.

Regarding the regular servicing of loans, almost 3 out of 4 households (78%) report having difficulty

paying monthly installments, while a further 6% is totally incomplete. The overall rate, which is 84%,

is particularly high compared to the past: it was 60% in 2009 and 65% in 2008. The difficulty of

servicing loans is 86% in housing, 86% in consumer, 79 % at car purchase loans, 90% to professional
64
and 82% to repairers. In the last three years, three out of 10 households (29%) have settled their loan,

while 2% of cases have sought some favorable arrangement but no effect. The successful settlement

rate depends on the type of loan, as it is higher for consumer loans (43%) and considerably lower for

mortgages (25%). Favorable regulations apply mainly to the economically inactive population (31%),

the unemployed (37%) and the households they face financial difficulties (31%). Fewer Loans Finally,

the latter years, according to the Public Issue, the percentage of households with a loan has fallen by

8%: from 49% in 2008, and 43% in 2009 to 41% in 2012.

With regard to the composition of the credits per household (21% in 2008, 16% in 2009, 25% in 2012),

a decrease in consumer spending (15% in 2008, 15% in 2009, 10% in 2012) (5% in 2008, 4% in 2009,

4% in 2012) and a drop in repair (4% in 2008, 3% in 2008, 7% in 2009, in 2009, 3% in 2012).

3.12 Loans in Delay and Establishment

Bad Bank

The qualitative element pointed out by bank executives with knowledge of delays and

experience in international banks is that, in addition to already "red" loans not serviced for more than

90 days, fixed loans are accumulated with less delay. The worsening recession leads banks to reduce

their collection capacity, since borrowers are unable to their obligations, at a time when the

"competitor" of the banks is the State itself, with the increased demands - tax and other. As the State

has a means of pressure against taxpayers, it reasonably takes precedence over debts to the banking

system. In this context, the loans that are currently in the news are under delay and contribute to an

unfavorable environment that credit institutions have attempted to tackle with increased forecasts.

However, the level of forecasts, 45% to 55% of bad debts, is doubtful if can now cover the

deterioration of the quality of the portfolios. These are loans with a high, mostly, loan-to-value ratio

property, while the "freezing" of auctions, which was socially necessary, created a volume of property,

which, if seized, could not be put on the market by the banks, as this would create a crash. The decline
65
in prices would, on the other hand, cause losses if the properties remain in the banks' portfolios. The

problem has been addressed by the Troika, and especially the International Monetary Fund has reported

the need to look for management solutions for non-performing loans on a stable rally path, including

transfer of bad loans outside credit institutions. Setting up a bad bank per bank, in line with

international practice, could help.

In the bad bank, problematic assets can be transferred, as well as current requirements that are

likely to become problematic. This unit, which will be completely separate from the bank, will

implement intensive debt collection procedures, through adjustments, and debt write-offs. In particular,

portfolio sales are expected to follow the recapitalization process in time balance sheets. This is a

common banking practice, which has so far been almost zero in Greece, but in any case, for the loans

sold, it does not change the legal framework that governs it, nor the contract. While the recapitalization

has been completed, the big challenge for the banking the sector is managing bad debts until the

recession is halted and the economy is gradually returning to a positive pace.

3.13 Management of Delays, Complaints

The solution for bad loans in cooperation with the state and the banks. The International

Monetary Fund has recently published a survey on the management of bad loans in the private sector in

the wake of the European economic crisis. The Fund evaluates programs that have been in place in a

number of countries (Estonia, Lithuania, Romania, Portugal, Ukraine etc.) and concludes that, with the

proper legal and economic framework, the implementation of these programs can be successful for the

benefit of all stakeholders parties (lenders, banks, wider economy).

A. Restructuring of Business Loans

The Fund is using as a matter of course the fact that loan restructuring and / or recourse cases

and the completion of the Bankruptcy Code (Article 99) are lengthy procedures due to a bureaucratic

institutional framework as well as to the increasing number of cases pending in court. The fund briefly
66
proposes the establishment of a Fast Track process for out-of-court settlement of loans outside the

bankruptcy code and changes to the bankruptcy code, which will allow for clear reporting thresholds,

support for the recovery of viable companies and rapid liquidation of non-viable companies. The state

must move rapidly to create an institutional framework for the implementation of the above to legally

allow for the rapid use of bank fixed assets by banks and banks in turn to consider ways to maximize

the benefits of these. As long as the accumulated forecasts remain and thus the non-viable companies

continue to operate, the more difficult banks will be able to stand by the economy with new funding.

In the case of the creation of an out-of-court Fast Track procedure and a change in the Greek

bankruptcy law data with the above characteristics, given the high level of provisions, a large number

of company fixed assets are expected to come to the hands of Greek banks. To maximize benefit from

banks, it would be prudent, to create portfolios of company assets either by bank or in co-operation

with banks and these portfolios to be promoted organized to potential investors. The pace of

privatization to be promoted by the government in the coming years, which will attract the interest of a

number of global investors, is ideal for promoting other ixed assets resulting from bank forecasts. It is

certain and healthy that asset seizures should be made on fixed assets that are guarantees of existing

business loans that have already been anticipated and recorded as losses from banks. Due to the

unfavorable economic conditions and the price declines that create a disincentive for banks to take

advantage of these assets now, by refining their balance sheets, it will be important to change the

legislative framework to speed up such procedures as the IMF and the IMF suggest careful selection of

companies that are unsustainable so that their liquidation releases resources into the system

(businessman-city-bank -five economy).

B. Restructuring Household Loans

Restructuring of household loans is a socially sensitive issue which requires careful handling

and an appropriate institutional / legal framework to be successful. Recent house arrests in Spain have
67
created major turbulence and problems for households who were forced to be evicted from seized

residences. The large percentage of households living in the poverty line in Greece and the fact that

more than 400 thousand households do not have one worker is expected to be a hindrance to such an

effort to exclude these households from a social and economic point of view.

3.14 Household over-indebtedness: A major European social problem

Heavily indebted households have to wait until 2020 to settle their case and get relief from their

loans.or the underlying cause is the burden of economic affairs cases, and financial crimes, which have

increased at alarming levels due to the crisis. In most magistrates' courts, it is the case for heavily

indebted households is determined from 2020 to 2022. In civil cases the trial is set after three to four

years. The government intends to proceed to the creation of a mediation institution in order to relieve

the judiciary from the volume of outstanding cases for heavily indebted households. Litigation is one of

the biggest thorns to tackle household indebtedness and therefore the Ministries of Development and

Justice are planning to create an institution mediation in order to relieve the judiciary from the volume

of pending cases, several of which are due to date in 2018 and 2019! As part of this effort, the Ministry

of Development is also promoting improvements to legislation on extra-judicial conciliation. Under a

draft law on loan arrangements, it is envisaged that an extra-judicial settlement will not require the

consent of all creditors, as is currently the case, but 51%. If they agree, it will be possible to settle with

other creditors as well. Indeed, it is envisaged to allow the borrower to pay the amount he believes he

can, based on his finances, until the process is completed. The HLG Act is one of the most

comprehensive and modern in the EU and globally , but its implementation has raised important issues

such as long-term lis pendens. At the same time, based on the research data of IKOPIOS, since

September 2010 until September 2012, the consumer organization as an out-of-court settlement sent

28,465 requests for debt settlement to its 7,998 members and no compromise was reached out of court.

Also a small number of cases are settled, about 100. Today, one in three consumers are late to pay
68
consumer and credit card installments, and one in five is delaying at least three months the installment

of the housing Over the last few years, the Member States of the European Union have taken

initiatives, through the institutionalization of legislative interventions and the implementation of

corresponding specific and general policies, in the field of addressing the negative economic and social

consequences of poor, over-indebted households. The main priority of the policy of the European states

is the implementation of measures to prevent over-indebtedness. These political interventions aim at

relieving the debt burdened by the consequences of their prolonged exposure to debt overdue through

the implementation of debt-cushioning, and the expansion of basic financial management (finance and

financial literacy), measures aimed at their economic and social integration (and alternative social

assistance measures, alternative dispute resolution measures to support out-of-court settlement of debts

between creditors and creditors (alternative dispute resolution and out-of-court settlement between

debtors and creditors) and through the implementation of specialized legislation protect the

indebtedness of the burdensome contractual clauses, the asymmetry of information between borrowers

and lenders on the terms of underwriting, and the practices of auctioning their property (usually

immovable) after legal proceedings by creditors (eviction procedures).

In addition to these specific policy interventions and legislation, the Member States of the

European Union have also developed more general protection and empowerment of consumers' rights

protection and empowerment), through national public and voluntary consumer organizations (conjoys

organizations), aimed at improving consumers' awareness of their rights and dealing with bad practices

of entrepreneurs and financial institutions towards them. With the implementation of a more general

framework for a systemic approach, Member States of the European Union are divided into states with

an existing free access system (England , Ireland) to countries with an existing Debt Settlement System

(Germany, the Netherlands, Belgium) in countries with an existing system of debt prevention (France,

Italy, Spain, Portugal Seas, Greece, Malta and Turkey) and in developing systems (existing in the new
69
states that joined the European Union). The Over-indebtedness in the countries where the debt

settlement system is in place is a result of borrowing and credit provision by financial institutions. The

prevention tools (through the provision of credit ceilings, the existence of Community Banks and

personal bankruptcy procedures) as well as debt counseling (through the provision of advanced and

specialized counseling services). In countries with an existing prevention system of debts is dominated

by the issue of over-indebtedness through preventive instruments (such as the setting of interest rate

ceilings, strict regulation of private bodies, supervision of banks, availability of state credit and

bankruptcy procedures for natural persons) advisory services are not very developed.

Finally, there are inadequate regulatory arrangements in the countries with developed systems and the

absence of advisory services. The more specific actions of the Member States of the European Union in

the field of support for heavily indebted persons through the alleviation of their remaining debts are

standardized in the debt settlement procedures that arise from all cases of consumer credit and are

applied in each Member State according to the existing legislative framework, but more specifically the

poorer, heavily indebted ones.

3.15 The complexity of the concept of over-indebtedness

The complexity of the issue begins with the fact that the very concept itself over-indebtedness is

not entirely clear what it is. On the other hand, it should be borne in mind that over-indebtedness not

only leads but is often due to social exclusion, and the costs involved are very important for both

individuals and creditors, but also for the state in general. With regard to the prevention of over-

indebtedness, one of the biggest difficulties is that, as is evident from surveys conducted so far at

European level, a large proportion of over-indebted persons ends up being heavily indebted due to the

occurrence of major and unforeseeable events) that materially affect his / her personal situation, such as

some serious illness, or change in working conditions, sharp drop in income. However, such incidents

are very difficult even to be probable -let alone anticipated - in advance, to avoid any over-indebtedness
70
due to their possible occurrence. This complexity but also the very important dimensions that over-

indebtedness can take, the three pillars that should be emphasized are in particular:

• Shielding the regulatory framework, if and to the extent necessary,

• the adoption of best practices and, of course,

• consumer education

3.16 Linking over-indebtedness to responsible lending:

Measures to be taken the rules being followed by the Greek banks. To the extent that one of the

components of over-indebtedness is weakness or much a major difficulty for a consumer to repay any

loan or credit he has generally received, over-indebtedness is closely linked to the conditions under

which credit is granted by the banks and the issue of responsible borrowers. At this point, I would like

to make the following remarks regarding the responsible attitude of Greek banks:

• the Bank of Greece has given specific instructions to banks on the control of the amount of borrowing

of each consumer as a percentage of his income

• banks are particularly cautious in lending to consumers by applying specific credit rating models to

ensure the highest possible security of repayment of their debt, and do not wish to collect bad debts

because these requirements, in line with the new rules of the Basle II Commission on Basel II, entail

the obligation to hold more capital and provisioning

• the information provided to the consumer at all stages of the contract is very detailed and is intended

to equip the consumer with the information that will allow him to take his or her decision

conscientiously and responsibly.

It should be noted that also in the framework of the Consumer Credit Directive under

preparation, one of the criteria put in place to monitor the application of the principle of responsible

lending is the compliance by banks with the obligations established to provide pre-contractual

information to the consumer

71
• another very important parameter for the most accurate assessment possible guessing the

creditworthiness of the consumer is to extract information about any other obligations that the latter has

taken over from the well-known Teresia white list. This basis, despite the restrictions imposed by the

Data Protection Authority, banks are constantly consulted. On the other hand, it is clear from the above

that the role of the consumer in the process of responsible lending is also very important. It is

absolutely necessary for the consumer to be a responsible borrower:

• providing accurate and complete information to the bank,

• participating in the process of the TEIRESIA white list

• devoting time to informing,

• working wisely, and

• complying with his contractual obligations.

Finally, the decisive role in this regard should also be noted

the State and consumer associations, in particular as regards consumer education and developing the

culture of the responsible borrower. The measures that can be taken in this regard are many and

particularly effective. For example, I refer to an initiative by the British Financial Services Authority

and the BBC, which promoted the so-called "Financial Healthcheck". This is a very simple

questionnaire, which can be quickly completed on the internet and which provides the consumer with a

qualitative analysis of his / her personal financial situation, suggests some priorities in terms of

borrowing and (State, Supervisors, Banks, Consumers) in order to maintain and create the conditions

that will allow for an effective and effective response to the crisis. over time to prevent over-

indebtedness.

3.17 The formation of the new bank map and impacts

The Greek banks were significantly affected by the big projects which the Greek state faces and

which diffuse throughout the economy. Indicatively, we can focus on raising taxes and reducing
72
incomes, leading both to the rise in NPLs and to the decline in deposits and savings. Also, the

prolonged volatility of the country has led to the withdrawal of a large volume of deposits from the

banking system. The aim of the restructuring of the banking sector is to lead to a sound and stable

banking system that will ensure liquidity in the economy. The Financial Stability Fund, established in

2010, plays a major role in the restructuring of the banking sector. The aim of the Fund is to maintain

the stability of the Greek banking system by strengthening the capital adequacy of credit

institutions.

3.18 Developments in the European Banking Union

The economic crisis has highlighted the need for better regulation and supervision of the

financial sector. In the framework of measures to ensure the stability of EMU, a roadmap for the

realization of a real Economic and Monetary Union has been formed which includes, among other

things, a consolidated financial framework. The completion of the Banking Union is Europe's most

complex and ambitious undertaking in the current period. The main institutional components of this

Banking Union are two main pillars:

 overseeing the banking system at European level through the Single Market Supervisory

Mechanism,

 the establishment of a Single Clearing Mechanism, which will apply the rules for the recovery and

consolidation of banks within the framework of the banking union and the operation of the single

reorganization fund. Banking Union is considered to be the biggest challenge for the European Union

banking sector. Major changes to European banking legislation, new operating rules and regulatory

intervention measures have significantly changed the strategy of European banks. Banking Union is a

key priority given its contribution to both the necessary restoration of consumer and business

confidence and the proper financing of the economy. It will reduce the current fragmentation of the

single market, help to ensure a level playing field in the EU and will also strengthen the European
73
banking system, while limiting the risk of the crisis.

3.19 Banking Union

The Banking Association aims to create an integrated financial framework to preserve financial

stability and minimize the costs of troubled credit institutions. The first moves towards banking

unification concerned the creation of the European Banking Authority (EBA) and, at the same time, the

creation of the European Systemic Risk Board (ESRB). In order to create an efficient banking union, a

common regulatory policy, a common reorganization policy and a common system are needed

insurance. The envisaged framework for the Banking Union includes a single rule book, a single

surveillance manual, a single supervisory mechanism, a single consolidation mechanism, and proposals

on deposit-guarantee schemes. The key elements envisaged by the banking association are:

-the oversight of the banking system at European level through the establishment of a Single

Supervisory Mechanism-SSM,

-the establishment of a SingleResolutionMechanism that will apply the rules for the recovery and

consolidation of banks within the framework of the banking union and the operation of the single

consolidation fund

- the operation of a Unified Deposit Protection Mechanism. A key condition for establishing an

effective Single Supervisory Mechanism is the creation of uniform rules for the regulation of the

banking sector. Banking association is considered to be the biggest challenge for the European banking

sector. Major changes to European banking legislation, new operating rules and regulatory intervention

measures have significantly changed the strategy of European banks. Although there is a surge in

European regulatory intervention, with the main argument that excessive regulation can have a negative

impact, in particular on lending to households and businesses, the experience of the crises in recent

years makes it imperative intervention and action.

74
3.20 Tackling the economic crisis- Conclusions

Addressing the crisis is not an easy task. It is certain that the measures to tackle them will be

judged for their efficiency and effectiveness and will be taught as a good or unfortunate example at

universities for many years. Today, in its midst, we can see that the crisis requires the adoption of the

right mix of monetary and fiscal policy and coordination at international level. Loan lending is one of

the main functions of a credit institution and occupies most of the bank's assets. Loans provided by

banks are their main source of revenue at the same time but they also entail higher credit risk. With the

term credit risk we mean the probability that the client of the bank will not be able to meet its

obligations and consequently can not cancel its loan. The impossibility of the borrower to meet its

obligations leads in consequence to the loan being transferred to a final delay and to write off the

balance sheet of the bank in the form of loss from bad debts. This may cause serious problems for the

bank's smooth operation, as its profitability may decline and its financial figures may deteriorate. In

order for the bank to avoid or reduce its exposure to credit risk, it must have reliable credit assessment

and approval methods and also follow its own credit policy as defined by the management.

With its specific credit rating systems borrower, account is taken of all the elements and criteria

that affect credit risk, qualitatively and quantitatively, and depending on the rating to be determined,

classifies the borrower at the appropriate level of risk. Early identification of the indications of the

problem and the determination of the severity of the problem difficulty of the customer, are crucial to

the actions to be taken and the appropriate measures to be taken to develop the funding, with a view to

secure the interests of the bank and the borrower. In this case, a sound credit reassessment of the client

is implemented, possible solutions are identified and evaluated and a feasible recovery plan, which is

acceptable to the client. In cases where clients who have temporary liquidity problems, either keep

accounts with overdue debts or are aware of a problem before the event, banks are given the

opportunity to settle debts in order to ensure the smooth payment of their obligations. Settlements have
75
as a direct purpose the collection of debts and are made where there is no other solution. They are

mainly made to sustainable customers who face temporary problems in order to recover and overcome

these difficulties, and less to customers where it appears that they will soon be unable to meet their

obligations. Finally, due to unfavorable economic conditions, an effective level of credit culture is

needed by banking organizations. An effective level of credit culture is not what minimizes credit

losses but what qualifies for qualitative credit, of course, meaning credit that contributes to the survival

and profitability of the organization. An integrated financial framework is an essential part of the

measures for the EU's return to economic recovery and growth. The Banking Union is the largest

reform in the EU since the introduction of the Euro. Banking Union is a key priority given its

contribution to the necessary restoration of consumer and business confidence and to the financing of

the economy. It will reduce the current fragmentation of the single market, contribute to ensuring a

level playing field in the EU and will also strengthen the European banking system, while limiting the

risk of the crisis.

76
CHAPTER 4: ECONOMIC INDEX AND RED-LINK ASSOCIATION STUDY

4.1 Introduction

In this chapter we will examine our variables, their description and we will see how these

indicators are related over time. The comparison and the analysis is done with the help of some

financial indicators. First we calculate the average values of our variables. Then a linear regression

application will be made and the conclusions will be drawn from the results and will be commented on.

First of all, let us give some information about our data. The source of our data was the quarterly

financial data reported by the banks of the four systemic banks. In particular, figures were collected

refers to the amounts of advances, the amounts of deposits, the index of the delay ratio, the data on the

ratio of the overdue coverage ratio and the ratio of loans to deposits as reported in the quarterly official

results on banks' sites. The four systemic banks whose financial data were collected are Alpha Bank,

Eurobank, National Bank and Piraeus. The time period of the collected data is from the 4th quarter of

2005 to the first quarter of 2014, in essence, the period before the crisis, during the crisis until today.

For each one variable it becomes a chronological analysis to identify the effects of the

deterioration of the financial situation on banks and on red loans. With regard to the data that will be

our variables are more detailed: Loans: which include in thousands of euros the total amounts allocated

from each bank individually in each quarter as reported in their official financial statements and their

balance sheets (for practical reasons and the needs of the work these amounts have been accounted for).

Bedings: which include in thousands of Euros the total amount of deposits from customers available to

each bank separately in each quarter such as were disclosed in their official financial statements and

their balance sheets (for practical reasons and the needs of the work, these amounts have been

accounted for). Loan to Debit ratio: This is an index that basically indicates the bank's liquidity and is

expressed as a percentage. It is found if we divide the bank's total lending to the bank's total deposits.

The evidence given by this indicator is that the higher the reason this means that banks may not have
77
enough liquidity to cover any future financial needs. Also, if this indicator is low enough, banks may

not earn as much as they could. In general, a low indicator shows more stability than a high risk

indicator. Loan spreads index: The so-called NPL performanceloansratio). It shows us the ratio of non-

performing loans to total loans. We use this index to compare lenders-banks. As long as someone has

this index higher, it means that the bank will have cash flow difficulties. This is because the more bank

loans a bank has, the more likely it is to have bad debts and thus losing her money. The higher this

index, the more likely this will happen. A high default ratio leads to an increase in credit risk and to a

slump in liquidity. This ratio is calculated by dividing the loans in arrears towards the total of the bank's

loans.

Non-performing Loan Covering Index: refers to the percentage of non-performing customers

covered by provisions. This indicator shows the bank's ability to absorb potential losses from non-

performing loans. It is calculated as follows: Loans-Reserve / Total amount of Non-Served Loans. It is

an important indicator as it shows the bank's ability to cover current and future losses. A higher index is

better than a low one, indicating that the bank has the ability to cover its losses.

4.2Description of the indicators

In this section we will study the average values of our indices in specific years and how they

evolved over time. Initially, Table 3.2.1 lists the years between 2005 and 2014, the second column

shows the Deferred Loan Index rates per year, the third column has been calculated from year to year

and Finally, in the fourth column the percentage change per year for this indicator is calculated.

Panel 4.2. 1: Deferred Loan Index

Year Index Prices Difference Percentage change %

78
2005 0.037000

2006 0.033250 - 0.0038 -10,14%

2007 0.029777 - 0.0037 -11.05%

2008 0.032375 0.0028 9,46%

2009 0.046438 0.0141 43.44%

2010 0.068938 0.0225 48,45%

2011 0.107625 0.0387 56,12%

2012 0.177813 0.0702 65.22%

2013 0.278063 0.1003 56.38%

2014 0.312750 0.0347 12,47%

79
 As can be seen from the results in Table 3.2.1, the larger ones percentage changes are observed

in the years 2011, 2012, 2013 with the top of 2012 being 65.22%. Initially, since 2005 and the first two

years there is a decrease of around 10%, we see that since 2008 there has been an increase in the loan

delinquency ratio from around 9.5% in 2008 initially and following larger increases in the following

years higher in height, as mentioned above in 2012 of 65%. In the following year, however, it is noted

that the index is declining to reach 12.5% in 2014, almost a little higher than in 2008. Chart 3.2.2

shows the evolution over time of the percentage change loan deferred rate. In Table 3.2.3, respectively,

the first column refers to the years over time from 2005 to 2014, in the second column, the ratio of

Loan to Deposits per year is reported, in the third column the difference between them is calculated

from year to year and finally in the fourth column is calculated the percentage change per year for this

indicator.

Panel 4.2.3 : Loan Ratio- Deposits

Index Prices Percentage change %

Year Difference

2005 0,912667 - -

2006 1,042750 0,1301 14.25%

2007 1,115308 0,0726 6.96%

80
2008 1,125625 0.0103 0,93%

2009 1,077188 -0.0484 -4.30%

2010 1,153813 0.0766 7.11%

2011 0,137375 -1,0164 -88,09%

2012 1,384063 1,2467 907,51%

2013 1,155188 - -

0,2289 16.54%

2014 1,068250 - -

0,0869 7.53%

As can be seen from the results of Table 3.2.3, if we exclude it in the year 2010, when there is

an increase in the Loan-Stocks ratio, there is a steady decline in the ratio of Loans-Deposits between

2005 and 2011 with a significant decrease of -88% in 2011. Exactly the following year there is a huge

increase of 907% and then the years 2013 and 2014 continue to reduce the ratio to 16.5% and 7.5% The

evolution of this ratio of Loans to Deposits is shown in Diagram 3.2.4 below. Table 3.2.5 is shown in

81
the first column of the table over the period from 2005 to 2014, in the second column the values of the

Loan Loan Coverage Indicator per year, in the third column the difference between them is calculated

from year to year and finally in the fourth column is calculated the percentage change per year for the

particular indicator.

Table 4.2.5: Delayed Loan Cover Indicator

Year Index Prices Difference Percentage change %

2005 0.825333

2006 0.820833 -0.0045 -0.55%

2007 0,788769 -0.0321 -3.91%

2008 0.701312 -0.0875 -11.09%

2009 0.593125 -0.1082 -15,43%

2010 0.540438 -0.0527 -8.88%

2011 0.510063 -0.0304 -5.62%

82
2012 0.500438 -0.0096 -1.89%

2013 0.515625 0.0152 3.03%

2014 0.528250 0.0126 2.45%

As can be seen from the results of Table 3.2.5, a constant is observed a decrease from 2005 to 2012,

with a peak percentage change in 2009 of 15% and a lower 0.5% in 2006. From 2013 onwards there is

a steady increase in the Loan Loan Coverage Rate of 3% in 2013 and 2.5% in 2014. In Diagram 3.2.6

we can also see the evolution of this index As can be seen from the results of Table 3.2.5, a constant is

observed a decrease from 2005 to 2012, with a peak percentage change in 2009 of 15% and a lower

0.5% in 2006. From 2013 onwards there is a steady increase in the Loan Loan Coverage Rate of 3% in

2013 and 2.5% in 2014. In Diagram 3.2.6, we can see also the evolution of this index.

4.3 Linking Indicators

In this section we will explore the relationship between them

of our indicator variables, ie the Loan Deferred Rate, the Loan to Deposits ratio and the Loan Loan

Coverage Indicator. First, let's say we have two approaches:

1st with the Pearson coefficient

2nd non-parametric approach, the so-called Spearman.

With the H0 zero hypothesis, the two variables we are dealing with are not related.

Panel 4.3.1: Correlation with the coefficient Pearson

83
 Delay Coverage Ldratio

Pearson Correlation 1 -, 555** 208

128 ,000 ,018

Delay Sig. (2-tailed)

555 128 128

coverage N

Pearson Correlation 000 1 ,397

**

Ldratio Sig. (2 128 128 ,000

- 397

tailed) ,208 ,000 128

N *

,018 128 1

128 128

**. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed)

The alternative hypothesis indicates that there is a relationship between the two variables. From

the results of Table 4.3.1 we can see that:

 The Loan Index and the Arbitrary Loan Coverage Indicator (value- 555) are negatively affected,

meaning that as the delay increases, the coverage decreases.

84
 There is a positive relationship (price, 208) between the ratio Loans to Deposits and

in the Loan Delay Index. That is, as the Loans to Deposits ratio rises, Loan Delay rises.

 Finally, the Loan Loan Coverage and Loan to Loan ratio

Deposits we see is negative (value- 397), that is, as one grows all coefficients were found to be

statistically significant, at a 5% significance level. From the results of Table 3.3.2, which relates to

correlation data with the nonparametric Spearman approach, we can see that:

 Deferred (price -, 724) the loan delays ratio with the arrears coverage ratio, ie the deeper the

coverage decreases.

 There is a positive relationship (value, 185) between the delay index and the ratio loans to and

suggests that as the ratio of loans to deposits increases, the

 Finally, there is a negative relationship (price -, 394) between the ratio of loans to

deposits and the coverage ratio of arrears, which means that as one increases, one decreases the other

respectively.

Panel 4.3.2: Correlation with non-parametric approach Spearman Correlations

Delay Coverage Ldratio

Spearman's rho Delay 1,000 -,724 ,185

Correlation Coefficient 128 ** *

Sig.

(2 -,724 ,000 ,037

- **

tailed) 128 128

N ,000

Correlation Coefficien 1,000 -,394

85
Coverage 128 **

Sig. (2 128

- ,185 ,000

tailed) * -,394

N ** 128

Correlation Coefficient ,037

Ldratio ,000 1,000

Sig. (2 128

- 128 128

tailed)

*. Correlation is significant at the 0.01 level (2-tailed).

*. Correlation is significant at the 0.05 level (2-tailed).

Based on these results, we see that these relationships are reasonable

which we see, ie a negative relationship between the loan-to-default ratio and the non-performing loan

coverage ratio. This is because as the non-performing loans increase, the greater the likelihood that

banks will have more bad debts and therefore less coverage. Also, the positive relationship between the

loan-to-deposit ratio and the loan-to-deposit ratio is understandable if we observe the course during the

period we studied. That is, we see that the ratio of lending to deposits is on an upward course, not of

course with the same rate of growth deposits with deposits. This observation is indicative of the loose

and expansive lending policy pursued by the banks before the outbreak of the crisis. Just the first

problems of the situation arose which would follow, the banks have redefined their strategy. The effect

86
of the deterioration was to limit expansionary policy and so

in 2009 the ratio of loans to deposits decreased, while on the contrary increased in 2010, but not due to

advances but mainly due to the sharp decline in deposits. In 2010, when confidence in the Greek

economy was shaken, there were massive deposits from Greek banks. According to the results after

2008, the percentage of servicing loans is showing a sharp rise. In 2010, the percentage of non-servants

more than doubled compared to 2007. So the deterioration of macroeconomic conditions has a direct

and strong negative impact on the percentage of non-servants.

4.4 Apply Linear Regression among the variables

By linear regression we will examine the relationship between the variables. We have estimated

a linear relationship for our endogenous variable, which is the loan lag index and inde- pendent

variables, the arrears loan coverage ratio, the loan-to-deposit ratio and the total loan amounts

* and deposits

*.In particular, the linear model is:

Y = β0 + β1 * x1 + β2 * x2 + β3 * x3 + β4 * x4 + u

Where

Y: The Loan Delay Index

x1: the coverage ratio for arrears

x2: the log of the total amount of loans

x3: the log of the total amount of deposits

x4: the ratio of loans to deposits

u: the error of regression

* values are logarithm zed Linear regression with data yielded the following results shown in Table

3.4.1 below.

Panel 3.4.1 Estimation of linear regression

87
Model Summary

Model R R Square Adjusted R Std. Error of the

Square Estimate

1 ,747 ,558 ,544 637343

a. Predictors: (Constant), Ldratio, lloan, coverage, ldepos

ANOVA

Model Sum of df Mean Square F Sig

Squares

Regression ,632 4 ,158 38,871 ,0008

Residual ,500 123 ,004

Total 1,131 127

a. Dependent Variable: delay

b. Predictors: (Constant), Ldratio, lloan, coverage, ldepos

Coefficients

Model Unstandardized Standardized t Sig

88
 Coefficients

Coefficients

B Std. Error beta

(Constant) -,528,220 -2,397 ,018

coverage -,170,050 -,255 -3,383 ,001

loan ,632,081 2,270 7,810 ,000

idepos -,537,077 -2,202 -6,956 ,000

Ldratio -,351,061 -,786 ,000

-5,711

The results of Table 3.4.1 show that all factors are statistically significant, which empirically

confirms the importance of independent variables and their impact on red loans, ie delays. In particular,

it was found that the coverage ratio (price- 170), deposits (price- 537) and the ratio of loans to deposits

(price- 351) negatively affect red loans. This, in turn, means how high the banks have been expected to

have low red loans. On the other hand, loans are positively influenced as the red loans were expected

(632). The ratio of the loan-to-deposit ratio, although found to be statistically significant, does not seem

to have the right sign due to the relationship with the other independent variables.

89
4.5 Impact of Loans and Deposits on the Financial Crisis
In order to find out the impact of loan and deposits on the financial crisis a panel regression

analysis has been conducted from XLSTAT, which is a powerful analytics software. In order to serve

the research purpose, a financial data regarding the loans, deposits and non-performing loans have been

gathered from the year 2006 to 2016. The secondary data has been collected from the 4 banking organ-

isations described as Alpha Bank, Piraeus Bank, Eurobank, NBG. The gathered data has been analysed

the correlation and regression analysis. For the correlation analysis, deposits and loans have been con-

sidered as the two variables. Further, the panel regression analysis has been utilised to analyse the loans

and non-performing loans.

Correlation Analysis

Correlation analysis is considered as the statistical term to find out the relationship among the

research variables. In the current research, correlation analysis is utilised to find out the relationship

between loans and deposits. For this purpose, correlation coefficients corresponding to 4 banks have

been calculated in order to find out the relationship between loans and deposits. The value of correla-

tion coefficients lies in between -1 to 1. The negative value of the correlation indicates the existence of

an inverse correlation in the research variables. However, the positive correlation coefficient suggests

that the considered variables increase or decrease in the similar direction. The relationship between

loans and deposits can be explained from the below tables.

  Loans Deposits

Loans 1

Deposits 0.908138 1
It has been analysed from the above table that the

correlation between loans and deposits is significant, as the correlation coefficient is obtained as 0.90 (r

=0.90). The extent of the correlation coefficient is too high which indicate that as the deposits of the

90
banks increases the loan also increases. Thus, loan and deposits are highly correlated. Further, the liter-

ature findings reveal that loans play a crucial role in the financial crisis; therefore, it is crucial to study

the variables which can cause the financial crisis in the banking sector.

Descriptive Statistics of the Research Variables

Variable Observations Obs. Obs. Minimum Maximum Mean Std. de-

with without viation

missing missing

data data

Loans 16 0 16 201.662 654.160 402.607 122.047

NPLs 16 0 16 57.090 126.000 92.431 19.367

It has been examined from the above table that the minimum loan amount in four selected bank-

ing organisations is 201.66 thousand Euros; however, the maximum loan amount is 654.16 thousand

Euros. Further, it is evident from the data findings that the mean of the loan amount in the four selected

banking organisations from the year 2006 to 2016 is 402.60 thousand Euros. In addition to this, it has

been examined that mean loan amount from the year 2006 to 2016 varies with the standard deviation of

122.04 thousand Euro. In addition to it, it has been identified that from the findings of the data that the

mean of the non-performing loans in the four banking organisations from the year 2006 to 2016 is

90.43 thousand Euros with the minimum amount of non-performing loan equal 57.09 thousand Euros

and the maximum amount of non-performing loans equal to 126.00 thousand Euros. Thus, it is evident

from the findings that maximum amount of non-performing loans in the banks as Alpha Bank, Piraeus

Bank, Eurobank, and NBG from the year 2006 to 2016 is equal to 126.00 thousand Euros. In addition

to it, it has been observed that mean non-performing loan in years 2006 to 2016 varies with the stand-

ard deviation of 19.36 thousand Euro. Such a large amount of non-performing loans can cause the fin-
91
ancial crisis in the banking sector; therefore, the issue must be effectively considered by the govern-

ment as well as the banking sector.

Panel Regression Analysis

Panel regression analysis is the most commonly used statistical method to analyse two-dimen-

sional data which is a combination of cross-sectional and longitudinal data. In this regard,a panel re-

gression model has been presented in the below section in which loans are taken as the independent

variables and non-performing loans are considered as the dependent variable. Since the data collected

for the selected banks corresponds to 10 years and 4 banking organisations; therefore, panel regression

is an appropriate statistical method to study the relationship between the variables. The findings and

results of the panel regression model have been presented below:

R-square 0.167

Adjusted R-

square 0.107

statistic.F parameter.df1 parameter.df2 p.value.F

2.805 1 14 0.116

The extent of correlation coefficient R indicates the amount of correlation in loans and non-per-

forming loans. In the current research, the loans are taken as the independent variable, and non-per-

forming loans are taken as the dependent variables.

Correlation coefficient R indicates there is a positive relationship between loans and non-per-

forming loans. Further, R-square is taken as the coefficient of determination square describes the

92
amount of variation explained by the total loan amount in the non-performing loans. In reference to the

above table, the correlation coefficient equal to 0.167, which is described as a weak correlation

between the loan and non-performing loans. Further, R-square is equal to 0.16, which indicate that 16%

variation in the non-performing loans of the banks is explained due to the loans of the firms. However,

the value of correlation coefficient is evidence of the fact that a weak correlation exists between the

non-performing loans and a total loan amount of the firms. Further, the below table describes the estim-

ate of the coefficient for non-performing loans and loan amount help to determine whether or not the

suggested regression model is enough to explain a large amount of variation in the dependent variable.

Estimate Std. t-value Pr(>|t|)

It has been Error identified from the

above table that the (Intercept) 65.744 16.996 3.868 0.002 coefficient of inter-

cept is 65.74 and Beta Loans 0.066 0.040 1.675 0.116 coefficient is equal to

0.066. Thus, it can be interpreted that the

total loan amount significantly affects the non-performing loans of the firms. Since the value of the

Beta coefficient is positive which indicate that non-performing loans increase with the increase in the

loan amount. In this respect, the probability value obtained as 0.116, which is greater than 0.05; thus,

the Beta coefficient is considered as insignificant that model is can be further improved by adding more

explanatory variables. However, the regression model with respect to the above table can be represen-

ted as:

NPS=65.744+.0.066*(Loans)

4.6 Interpretation of results

Loans and Deposits are indices of bad debts. At the same time, however, another indicator that

also plays a role is the coverage ratio. Therefore, banks with a high coverage ratio are expected to have
93
less red loans. Finally, see Table 3.4.1, namely Beta values and the signs we see that loans (Lloan) are

important. Looking at the column of estimates of standard rates, we find that the most important

variables for red loans are the size of the loans granted by the bank and deposits. These two variables

have the same effect on the index of red loans with a different effect (positive for loans, negative for

deposits as expected). This basically means that if the loan growth is accompanied by an equal increase

in the bank's deposits, then the index of red loans does not change.

4.7 Conclusions

The recent financial and debt crisis of the Greek government have affected the Greek banking

system from all sides. Liquidity of banks has also been under strong pressure. Overall, banks have been

losing deposits over the years. After the second half of 2010, confidence in the Greek economy was

shaken, and bulk deposits from Greek banks and their transfer abroad. It is worth noting that in recent

years bank lending is more than the deposits they have. After 2009 the situation has further deteriorated

due to a drastic reduction in deposits. Finally, similar phenomena have been observed in relation to the

quality of the portfolio. In 2010 the amount of non of loans totaled 39 billion, more than twice the

equivalent of 13.4 billion in 2007. The main conclusion is that the crisis has negatively and to a great

extent affected all banks in all directions. As the deterioration in the financial situation in Greece

continues, the more so will the situation of the banks as a survival issue become more difficult. From

the analysis and the data gathered from the published financial data of the four systemic banks and the

diachronic display of the key indicators of the banks we have accumulated, we can summarize the

following:

Delay Index:

As can be seen from the chart from December 2005 to June 2008, there was a stability of the

default ratio reported by the banks. Since September 2008, when the financial crisis began, the

downward trend has been on an upward trend for all banks. From the financial data of the banks, we
94
see that the biggest increase is presented by Eurobank from September 2008 to September 2009.

Loans:

Loans show an increasing trend which continues up today, but the growth rate of advances has

decreased substantially. The sharp fluctuations in lending rates are largely due to the write-offs of late

loans made by banks at regular intervals.

Loan to Deposit ratio:

From the tables with the data-financial data of the banks in the annex, we see that, with the

exception of National Bank, where the loan-to-deposit ratio is less than 100%, the other banks show

this index more than 100%, with a larger a share of Eurobank with 117%. This indicator reflects the

risk of banks in the event of a rise in bad loans. While Eurobank is the second largest in terms of bank

deposits, it still has the highest loan-to-deposit ratio, which proves its high lending. This indicator

worsened in Greece while on the contrary it improved abroad, mainly due to the decline in deposits.

Late Loan Cover Indicator:

Observing the overdue loan coverage ratio over time, especially after the 2008 crisis, it is

decreasing for all banks. With the rise in arrears and the increase in provisions, an increase in this

indicator would be expected, which proves that forecasts may not be proportionate to the delays. For

2009, the growth rate of the bank lag rates is steadily increasing. With the above rising rates of

uncertainty and doubtful the immediate future, banks are under pressure to generate increased

provisions by the bank of Greece in order to cover the credit risk caused by bad loans so on the one

hand to protect against further increase in overdue loans and on the other to increase the coverage ratio

with accumulated forecasted loans, which remains at a low level. A counterpoint to the low coverage

rate on the part of the banks is the fact that this indicator does not include guarantees and collateral.

EPILOGUE

In conclusion, we can say that there has been a gradual deterioration of the situation of Greek
95
banks during the 2007-2011, which is also evidenced by the large and negative rates mainly of the

profitability ratios. The main reason that led to this development was the unfavorable economic

conditions prevailing during that period which, as a direct consequence, had the limitation of the bank's

operating activities and its impairment Greek bonds that banks held in their portfolios.

The main objective of this work was to prepare a presentation of the terms economic crisis,

non-performing loans - "red loans", ways of dealing with this crisis and non-performing loans by

banks, and then the consequences of the economic crisis and its connection to the red loans. In order to

achieve this objective, it was considered appropriate to quote initially some of the bases characteristics

of the financial system, but also the most important developments that have shaped the role it currently

plays in the general economic environment.

In addition, a special reference was made to the course of the Greek banking system during the

period 2005-2014 so as to it is possible to link the changes in the external environment with the

evolution of economic aggregates and the increase in non-performing loans. We have also mentioned

how to deal with and the arrangements in place to combat bad debts. An analysis of the concept of the

economic crisis was then made, its causes and its consequences in various sectors in Greece and in

Europe in general. It was followed by the part of the work on the longitudinal analysis of the data

comprised of the financial data of the four systemic banks and the interpretation of the results exported

relationship of some economic indicators with the red loans and bad debts. The basic assumption that

was exported was that during the period 2005-2014, and after a relatively long period of growth, the

Greek banks were tested by the decrease in financing and deposits and the increase in provisions for

addressing credit risk. These changes were dictated by the adverse financial and macroeconomic

conditions prevailing in the country during this period, and had as a direct consequence the significant

decline of the banks' profitability. It is therefore necessary to continue the efforts of all sides in order to

lead to the recovery of the economy and not to lose the efforts and deprivations of so many years since
96
the beginning of the crisis. There is a need for an organized system and the continuation of the steps in

order for the country to develop again.

97
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106
ANNEX

A-1 Average indicator values in specific years

2005

Statisticsa

Delay Ldratio Coverage

Valid 3 3 3

Missing 0 0 0

Mean ,037000 ,912667 ,825333

2006

Statisticsa

Delay Ldratio Coverage

Valid 12 12 12

Missing 0 0 0

Mean ,033250 1,042750 ,820833

2007
 Statisticsa

Delay Ldratio Coverage

Valid 13 13 13

Missing 0 0 0

Mean ,029577 1,115308 ,788769

2008

Statisticsa

Delay Ldratio Coverage

Valid 16 16 16

Missing 0 0 0

Mean ,032375 1,125625 ,701312

2009

Statisticsa
 Delay Ldratio Coverage

Valid 16 16 16

Missing 0 0 0

Mean ,046438 1,077188 ,593125

2010

Statisticsa

Delay Ldratio Coverage

Valid 16 16 16

Missing 0 0 0

Mean ,068938 1,153813 ,540438

2011

Statisticsa

Delay Ldratio Coverage

Valid 16 16 16
 N

Missing 0 0 0

Mean ,107625 1,373750 ,510063

2012

Statisticsa

Delay Ldratio Coverage

Valid 16 16 16

Missing 0 0 0

Mean ,177813 1,384063 ,500438

2013

Statisticsa

Delay Ldratio Coverage

Valid 16 16 16

N
 Missing 0 0 0

Mean ,278063 1,155188 ,515625

2014

Statisticsa

Delay Ldratio Coverage

Valid 4 4 4

Missing 0 0 0

Mean ,312750 1,068250 ,528250

A-2 In the following tables the values of each bank data used for the analysis are presented in detail.

Loans (thousands of euro)

2005 2006 20 200 200 200 200 200 200 200 200 200 200 200 200 200

12 03 06 609 612 703 706 709 712 803 806 809 812 903 906 909

06

Alp 28.39 29.1 31, 32.2 32.2 33.8 36.5 40.2 42.0 45.2 47.6 50.5 51.9 52.1 52.2 52.5
haba 7€ 74 € 00 85 € 23 € 48 € 90 € 97 € 72 € 16 € 34 € 50 € 81 € 52 € 45 € 63 €

nk 0€

Pira 15.88 17.0 18. 19.6 20.8 22.8 25.5 28.1 € 33.7 36.2 38.9 € 38.5 38.2 38.3

eus 4€ 52 € 64 67 € 04 € 23 € 47 € 38 € 30,7 36 € 87 € 36 € 39,0 75 € 73 € 34 €

Ban 3€ 05 16

Eur 27.38 28.6 30. 32.2 34.8 37.3 40.5 43.1 46.6 50.1 53.8 56.5 57.1 56,3 56,4 56.7

oba 5€ 85 € 44 94 € 95 € 62 € 35 € 26 € 71 € 00 € 00 € 00 € 00 € 00 € 00 € 00 €

nk 6€

NB 30.61 31.5 32. 40.2 44.1 45.7 49.2 52.0 56,3 57.1 61.4 65.7 66.1 67.6 68,5 69.8

G 4€ 31 € 82 63 € 77 € 32 € 77 € 02 € 00 € 00 € 00 € 74 € 00 € 00 € 00 € 77 €

3€

2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013

2009 03 06 09 12 03 06 09 12 03 06 09 12 03

12

53 53.34 53.30 52.04 51.52 50.77 50.46 49.88 49.74 48.86 42.77 45.51 45.10 65.03
.043 0€ 4€ 0€ 5€ 2€ 2€ 8€ 7€ 9€ 8€ 2€ 2€ 3€

37.68 37.73 38,50 38.00 37,60 37.00 36.70 35.54 37.05 35.86 35.94 46.57 50.57 71.86

8€ 6€ 0€ 0€ 0€ 0€ 0€ 5€ 8€ 0€ 7€ 9€ 3€ 8€

57,50 58.10 58.60 57.60 58,50 52,30 52,70 52,30 51,50 50.50 48.59 48.17 47.84 47.39

0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 9€ 7€ 1€ 9€

71.50 73.13 75.13 74.41 75.10 74,34 € € 72,43 70.71 70.70 70.61 70.50 70.90

0€ 1€ 2€ 4€ 5€ 8€ 74,02 73,23 2€ 0€ 6€ 8€ 9€ 8€

5 3

201306 201309 201312 201403

63 63.300 € 62.800 € 62.300 €

.946 €

75.679 € 74.787 € 76.114 € 73.610 €

€ 46,315 54.448 € 53,500 € 52,400 €

 69.808 € 70.781 € 70.140 € 70.450

Deposits (thousands of euros)

200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200

512 603 606 609 612 703 706 709 712 803 806 809 812 903 906 909

Alp 21.6 21.6 22.2 29.7 31,0 32.1 31.7 32.3 34.6 35.9 37.5 42.1 42.5 41.0 42.8 41.9

haba 45 € 05 € 43 € 86 € 15 € 65 € 96 € 42 € 65 € 86 € 21 € 58 € 47 € 19 € 46 € 19 €

nk

Pira € € 16.5 16.8 17.9 19.6 20.7 21.3 23.9 27.2 29.5 31.5 31.2 30.9 31.7 31.4

eus 14,0 14,7 47 € 68 € 64 € 39 € 35 € 98 € 14 € 32 € 52 € 96 € 93 € 30 € 79 € 11 €

Ban 30 08

Eur 23.9 20.7 21.4 22,4 23.9 26.3 27.1 32.4 36.2 39.1 43.8 46.1 45.7 45.9 47.0 47,4

oba 00 € 39 € 00 00 € 00 € 60 € 00 € 00 € 00 € 00 € 00 € 00 € 00 € 00 € 00 € 00 €
nk €

NB 32.0 43.1 45.6 50.1 52.6 53.1 55.2 57.3 60.0 60.5 63.9 67.2 67.7 € 70.6 69.9

G 00 € 60 € 64 € 27 € 81 € 93 € 85 € 93 € 00 € 25 € 16 € 17 € 00 € 68,9 24 38

95 €

2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013

12 03 06 09 12 03 06 09 12 03 06 09 12 03

42.91 41.45 39.65 39.85 38.29 37,60 33.48 31.68 29.39 27.85 25,60 26.27 28.45 42.04

6€ 7€ 7€ 6€ 3€ 0€ 4€ 2€ 9€ 2€ 0€ 6€ 1€ 5

30.75 30.10 € 30,00 30,00 28,70 26,40 24.52 22,03 20.90 19,22 33.27 36.97 53.34

5€ 0€ 29,70 0€ 0€ 0€ 0€ 2€ 8€ 5€ 0€ 9€ 1€ 0€

46.80 44.80 43.50 43,60 44,40 40.40 34.90 33.90 32,50 31.60 28.01 28.92 30.80 32.20

0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 3€ 7€ 0€ 0€

71.19 70.53 68.70 70.13 68.03 67.77 62.11 60.66 59.54 57,41 55.19 55.70 58.72 60.48
4€ 8€ 2€ 4€ 9€ 5€ 5€ 8€ 4€ 9€ 6€ 9€ 2€ 6€

201309 201312 201403

201306

42.036 € 42.000 € 42,500 € 41.800 €

54.733 € 54.692 € 54.279 € 54.609 €

€ 30,200 42,300 € 41.500 € 40.500 €

60.824 € 65.038 € 62.876 € 65.888 €

Deposits (thousands of euros)

200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200

512 603 606 609 612 703 706 709 712 803 806 809 812 903 906 909
Alp 21.6 21.6 22.2 29.7 31,0 32.1 31.7 32.3 34.6 35.9 37.5 42.1 42.5 41.0 42.8 41.9

haba 45 € 05 € 43 € 86 € 15 € 65 € 96 € 42 € 65 € 86 € 21 € 58 € 47 € 19 € 46 € 19 €

nk

Pira € € 16.5 16.8 17.9 19.6 20.7 21.3 23.9 27.2 29.5 31.5 31.2 30.9 31.7 31.4

eus 14,0 14,7 47 € 68 € 64 € 39 € 35 € 98 € 14 € 32 € 52 € 96 € 93 € 30 € 79 € 11 €

Ban 30 08

Eur 23.9 20.7 21.4 22,4 23.9 26.3 27.1 32.4 36.2 39.1 43.8 46.1 45.7 45.9 47.0 47,4

oba 00 € 39 € 00 00 € 00 € 60 € 00 € 00 € 00 € 00 € 00 € 00 € 00 € 00 € 00 € 00 €

nk €

NB 32.0 43.1 45.6 50.1 52.6 53.1 55.2 57.3 60.0 60.5 63.9 67.2 67.7 € 70.6 69.9

G 00 € 60 € 64 € 27 € 81 € 93 € 85 € 93 € 00 € 25 € 16 € 17 € 00 € 68,9 24 38 €

95 €

2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013

12 03 06 09 12 03 06 09 12 03 06 09 12 03
42.91 41.45 39.65 39.85 38.29 37,60 33.48 31.68 29.39 27.85 25,60 26.27 28.45 42.04

6€ 7€ 7€ 6€ 3€ 0€ 4€ 2€ 9€ 2€ 0€ 6€ 1€ 5

30.75 30.10 € 30,00 30,00 28,70 26,40 24.52 22,03 20.90 19,22 33.27 36.97 53.34

5€ 0€ 29,70 0€ 0€ 0€ 0€ 2€ 8€ 5€ 0€ 9€ 1€ 0€

46.80 44.80 43.50 43,60 44,40 40.40 34.90 33.90 32,50 31.60 28.01 28.92 30.80 32.20

0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 0€ 3€ 7€ 0€ 0€

71.19 70.53 68.70 70.13 68.03 67.77 62.11 60.66 59.54 57,41 55.19 55.70 58.72 60.48

4€ 8€ 2€ 4€ 9€ 5€ 5€ 8€ 4€ 9€ 6€ 9€ 2€ 6€

201306 201309 201312 201403

42.036 € 42.000 € 42,500 € 41.800 €

54.733 € 54.692 € 54.279 € 54.609 €

 € 30,200 42,300 € 41.500 € 40.500 €

60.824 € 65.038 € 62.876 € 65.888 €

A-3 Loans to Deposits

Loans to Deposits

200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200

512 603 606 609 612 703 706 709 712 803 806 809 812 903 906 909 912

Alp 103 106. 110. 104. 104. 108. 118. 122. 121. 123. 125. 118. 113. 117. 109. 112. 110.

haba .0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

nk

Pira 88. 88.5 90.9 114, 110. 112. 118. 122. 120. 117. 114. 115. 112. 112. 107. 103. 107.

eus 8% % % 4% 3% 0% 9% 0% 6% 0% 5% 0% 0% 0% 0% 0% 0%

Ban

k
Eur 115 138. 142. 144. 123. 122. 127. 130. 126. 125. 120. 119. 122. 114. 117. 116. 119.

oba .0% 0% 0% 0% 0% 0% 1% 1% 2% 5% 1% 9% 0% 0% 0% 5% 0%

nk

NB 70. 72.3 71.9 75.0 81.0 83.0 89.0 88.0 90.0 92.0 94.0 95.0 95.0 95.0 94.0 94.0 97.0

G 0% % % % % % % % % % % % % % % % %

201 201 201 201 201 201 201 201 201 201 201 201 201 201 201 201

201 006 009 012 103 106 109 112 203 206 209 212 303 306 309 312 403

003

114 120. 130. 135. 135. 150. 157. 169. 168. 167. 158. 139. 136. 127. 125. 117. 116.

, 0% 0% 0% 0% 0% 0% 0% 0% 0% 1% 0% 0% 0% 3% 0% 0% 0%

107. 111. 108. 107. 129. 139. 145. 156, 158. 170. 126. 116. 114. 116. 113. 111. 109.

0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%

127. 130. 127. 126. 123. 151, 154. 158. 110. 159. 152. 140. 132. 136. 111. 110. 109.

0% 0% 5% 6% 0% 0% 0% 0% 0% 0% 0% 4% 0% 0% 0% 0% 3%

98.0 103. 99.0 103. 102. 110. 111. 109. 111. 116. 114. 110. 104. 102. 97.0 97.0 93.0
 % 0% % 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% % % %

Impact Loan Cover Indicator

20 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200

05 603 606 609 612 703 706 709 712 803 806 809 812 903 906 909

12

Alpha 53.0 50.0 53.0 56.0 61.0 60.0 56.0 57,0

bank % % % % % % % %

Pirae 80. 77.6 80.0 76.0 77.0 68.0 68.0 67.0 66.0 69.0 69.0 68.0 51,0 48.0 48.0 48.0

us 0 % % % % % % % % % % % % % % %

Bank %

Eurob 92. 91.2 90.1 87.8 89.3 91.7 92.4 91.2 92.1 86.0 83.8 77.6 89.7 77.6 65.8 60.0

ank 0 % % % % % % % % % % % % % % %

NBG 75. 77.0 76.0 79.0 84.0 85.0 84.0 86.0 81.0 78.0 77.0 78.0 75.0 70.0 67.0 63.0

6 % % % % % % % % % % % % % % %

%
 20100 20100 20100 20101 20110 20110 20110 20111 20120 20120 20120 20121

20091 3 6 9 2 3 6 9 2 3 6 9 2

55,00 53.00 53.00 53.00 51.00 51.00 48.00 46.00 45.00 43.00 43.00 43.00 45.00

% % % % % % % % % % % % %

51.00 50.00 50,20 49.00 48.40 47.00 46.40 46,00 52.00 48.00 50.00 55,00 51.00

% % % % % % % % % % % % %

58,60 55,70 54.00 52.00 51.40 50.00 50,50 51.60 54,60 53.50 42,20 53.00 53.50

% % % % % % % % % % % % %

64.00 63.00 63.00 63.00 55,00 56.00 58.00 56.00 58.00 59.00 55,00 53.00 53.50

% % % % % % % % % % % % %

201306 201309 201312 201403

201303

52.00% 51.00% 52.00% 54.00% 56.00%

 50.00% 49.00% 49.00% 51.00% 51.00%

53.60% 43,60% 48,80% 50.00% 50,30%

54.00% 56.00% 55,00% 56.00% 54.00%

A-4 Delay Index

Delay Index

200 200 200 200 200 200 200 200 200 200 200 200 200 200 200 200

512 603 606 609 612 703 706 709 712 803 806 809 812 903 906 909

Alp n.d. n.d. n.d. n.d. 5,10 4,80 4.40 3.90 3.70 3.70 3.50 3.50 3.90 4.30 4,80 5,20

haba % % % % % % % % % % % %

nk

Pira 3.40 3,20 2.93 2,10 2.40 2,20 2,10 2,10 3.40 3,30 3,30 3.50 3.60 4,10 4.50 4,80

eus
Ban % % % % % % % % % % % % % % % %

Eur 3.00 3.00 3.01 3,10 2.76 2.65 2.60 2.60 2.40 2.50 2.50 2.70 2.70 3,20 4,10 4.90

oba % % % % % % % % % % % % % % % %

nk

NB 4,70 4,60 4,60 4,20 4.00 4.00 3.70 3.60 3.40 3.50 3,20 3,10 3,30 3.70 4.40 4.90

G % % % % % % % % % % % % % % % %

2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013

12 03 06 09 12 03 06 09 12 03 06 09 12 03 06

5.70 6,30 6,90 7,70 8.50 9,30 10,3 11,60 12.9 14.9 18,2 20.9 23,8 30,1 31,8

% % % % % % 0% % 0% 0% 0% 0% 0% 0% 0%

5,10 5.60 6.00 6,80 7,60 8,60 9,60 11,70 13.5 16.0 18.4 18.0 23,3 31.0 33,0

% % % % % % % % 0% 0% 0% 0% 0% 0% 0%
 5,20 5.80 6,30 7,20 7,70 9,20 10,1 10.9 12,1 13,7 15,4 17.0 18,3 19,7 21.0

% % % % % % 0% 0% 0% 0% 0% 0% 0% 0% 0%

5,40 6.00 6,30 7,10 8.50 9,20 10.0 11.00 12,2 14.0 16.0 18.0 18,6 19,8 20.5

% % % % % % 0% % 0% 0% 0% 0% 0% 0% 0%

201309 201312 201403

32.90% 32,70% 33,30%

35,00% 36,60% 37,90%

27,00% 29,40% 30,90%

21,90% 22,50% 23,00%

A-5 Non-performing household loans as a % of total loans

Evolution of non-performing household loans as a percentage of total loans

20 200 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20

07 8 08 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13

12 06 12 06 09 12 03 06 09 12 03 06 09 12 03 06 09 12 03 06 09
4.5 4.7 5.0 6.8 7.2 7.7 8.2 9.0 10. 10. 11. 12. 13. 15. 17. 21. 24. 25. 27. 29. 32.

% % % % % % % % 0 4 5 8 9 9 0 4 5 4 8 3 2

% % % % % % % % % % % % %

Evolution of non-performing household loans as a percentage of total loans

2005 2006 2007 2008 2009 2010 2011 2012 2013

61.9 61.8 53.4 48.9 41.5 45.5 57.8 48.1 49.3

% % % % % % % % %

A-6 NPLs in Greece

NPLs in Greece (% of total outstanding)

Categ 2007 2008 2009 2010 2010 2011 2011 2012 2012 2013 2013 2013 2013

ory / 06 12 09 12 06 12 03 06 09 12

Perio

d
Cons 6.0% 8.2% 13.4 16.7 20.0 26,4 28.8 35.7 38.8 42,4 43.8 45.8 47.6

umer % % % % % % % % % % %

Mort 3.6% 5.3% 7.4% 8.7% 10.3 14.0 14.9 19.9 21.4 27.5 25.8 26.1

gages % % % % % % % %

Busin 4.6% 4.3% 6.7% 7.6% 8.8% 13.0 14.2 19.6 23.4 22.9 29.2 31.2 31.6

ess % % % % % % % %