The recent liberalization of the economy has facilitated Greece’s return to growth.
Combined with the Greek Government's commitment to EU membership, we believe this has created an appealing market for investment. Despite improvements, Greek banks’ ratios of bad loans remained in excess of 45% in 2017 — the highest in Europe.1 The four systemic banks had combined non-performing exposures (NPEs) of €105b as at 30 September 2017 and must reduce this amount by €43b by 2019, in line with Bank of Greece targets.2 The scale of these reductions necessitates that loan sales will be a significant part of the solution. We therefore expect a significant increase in the supply of portfolios coming to market.
In 2017, the economy is expected to return to gross domestic product (GDP) growth, with the International Monetary Fund (IMF) forecasting a rise of 2.2% and 2.7% in 2017 and 2018 respectively.3 As the underlying quality of Greek loan portfolios has improved in line with the real economy, they have become increasingly attractive to investors. The gradual improvement in macro-economic conditions has already resulted in very significant investor demand in the first loan sales. We expect such demand to only increase as more portfolios come to market.
This is not to suggest that Greece does not face its own challenges — legal and regulatory hurdles do still exist. However, the Greek Government has consistently re-affirmed its commitment to remain within the single currency and consequently, to accept the reform program.
This document sets out the opportunities and challenges of investing in the Greek NPL market. In particular, we have provided an overview of the economic and political context before outlining the current evolution of Greek NPLs. We have then considered the regulatory and legal hurdles, as well as a specific look at the servicing landscape.
Finally, we have reviewed the emergent NPL market in Cyprus. The value of Cypriot NPLs is much smaller than those in Greece, with combined NPEs in the three largest banks of €18b.4 However, improvements in the regulatory landscape and challenging NPE ratios make transactions likely.
1 EY analysis.
2 EY analysis.
3 “Greek Economy to Grow 2.2% in 2017 and 2.7% in 2018,” Greek Reporter, 18 April 2017.
4 EY analysis.