A report in the Greek newspaper Kathimerini sheds light on the Greek banking system which has allowed wealthy individuals to rack up billions of dollars of ‘bad debt’ while at the same time they hold billions of dollars deposits with the very same banks. Many others have piled up bad debts owed by their companies and used this to shift wealth into their offshore accounts. The Greek government was still waiting for an email from the Troika on what, if anything, to do next. See below…..
A few months ago an employee at a major Greek bank who had just transferred to its newly created nonperforming loans management department noticed a very familiar name as he was going through the files of bad debtors. The name was the same as a client he knew who had large deposits with the bank.
Before his transfer to the NPLs division, the employee frequently saw clients at the branch where he worked with whom he negotiated interest rates for time deposits. At first he thought it was a mere coincidence, but he soon realized that the bad debtor and the client with the high deposits were one and the same person.
The clerk informed his superiors and a decision was immediately reached to run a search through the bank’s records for other such “coincidences.” A few weeks later the results were particularly impressive: Some 10 percent of those who were not servicing the debts they had run up at the bank also maintained large deposits there.
These are the so-called strategic defaulters, who viewed the crisis as an opportunity to avoid paying their dues. They are tactical bad debtors who are able to cover their debts but do not in anticipation of a more favorable future settlement, usually through the use of laws to benefit the financially challenged. Strategic defaulters are everywhere among us: salary workers, self-employed and of course businesspeople and corporations.
Banks now estimate that nonperforming loans have reached particularly high levels, over 35 percent of the total, but believe that the current picture also includes many strategic defaulters. As the economy improves, lenders expect the tactical bad debtors to be forced to settle their dues. At the same time they are closely monitoring the behavior of every client they consider to be suspicious, thereby reducing the scope for such strategies.
Sources from the Bank of Greece highlight the phenomenon of wealthy company owners who have allowed their enterprises to lapse into overindebtedness.
Notably, the decline in deposits from 2009 to 2013 came to some 70 billion euros, exactly the same amount as the sum of bad loans in December 2013. Officials from the credit sector estimate that out of the 30 billion euros in NPLs at the end of 2013, about 10 billion may well concern strategic defaulters, or entrepreneurs who have placed huge debt burdens on their companies and transferred a large sum of the loans they have received to their personal accounts, thereby using their firms as cash machines.
See full report here