Loans

Are we through with non-performing loans?

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Written by Publishing Team

Are we through bad loans

Closed garment factory seen in file photo. Many companies are doomed to fail even if they enter into a settlement plan for their bad loans because they do not have access to the banks. [AMNA]

When you inject roughly €43 billion into the economy through government-backed support programs that account for 25% of GDP, and as a result GDP ends up compensating for its losses of 13.4% in the third quarter, well, that’s not a serious reason to get excited.

It is positive that the economy is almost back to what it was in 2019, but this is due to the injection of 43 billion euros, the increase in private and public consumption, the construction of new homes, with a parallel jump in the external balance of payments: the economic model has not changed, and with few exceptions, Our exports are still limited, low-tech and/or expensive. Each jump in GDP is accompanied by a jump in the external deficit – which indicates a decline in the country’s overall productivity.

Some festivities, even exaggerated ones, on the part of the government wouldn’t be a problem if it didn’t cover up inaction that could undermine the course of the economy. Among them, virtual reality in the management of non-performing loans.

The bad loans that have been discharged by the banking system through securitization, along with those that will be discharged in the future in the same way, are estimated at around €100 billion. Presumably, these loans were turned into special funds to reduce them, separate the wheat from the chaff, help those who really want a fresh start, and, on the other hand, close the zombie companies, preventing taxpayers and depositors from losing money to unite the markets.

What happened? Actually, nothing. It is as if the bad loans disappeared the moment they were transferred to the funds. Or as if there’s money you’re spending all of a sudden.

This effort to escape the rut can spell the end of some businesses. Even in the best-case scenario, the efforts of some companies to get back on their feet are almost doomed to failure. Many companies are being held hostage, and although they have concluded some kind of agreement on their loan, they are deprived of any access to banking services. Individual Supervision Mechanism guidelines prevent banks from financing them, but without new loans these companies will not be able to stand on their own feet in the long term.

It would make sense to find an arrangement relating to bad loans, to test whether companies can/want to meet their obligations, to determine if their shareholders are willing to pay out of their own pockets and then re-establish their relationship with the banking system. None of this is done.

This is one side of the erotica. The other is zombie companies and bad payers. They are not only resisting any debt consolidation, but many of them have become more stringent, receiving state aid through advances (non-repayable, money for rent, electricity, water, telephone, etc., with taxpayer money, under the state support scheme for the economy). Pressure can be put on them either by selling their business assets or by reselling the same company to new owners.

The tool for applying such pressure is well known and is called foreclosure, but foreclosure is something no government wants to hear in a pre-election period like the one we live in now.

And what about after the foreclosure? Well, if the gap between projected and actual bad loan revenue continues to widen for the funds that bought it, the next victim could be the €22 billion government guarantees of Hercules’ asset protection system.

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