Brussels and Berlin have warned that unless the Greek banks take initiatives to address the management on non-performing loans, they will not fund any recapitalization efforts. As such, Greek banks may be faced with a bail in, in accordance with European directives. This means that the bank recapitalization will be carried out by shareholders, bondholders and uninsured deposits.
Although the management of NPLs is a critical issue in the second bailout program review, essential legislative initiatives – such as out-of-court settlements and offering legal protection to bank officers involved in the restructuring of troubled businesses – have yet to be implemented.
Even in areas where such initiatives have been carried out – such as the foreclosure of homes – the law is not necessarily implemented. These developments result in the banks being unable to effectively distinguish between strategic “bad debtors” and those genuinely unable to fulfill their obligations.
