Are we done with the bad loans?



A closed clothing factory can be seen in a file photo. Many companies are doomed, even after completing a settlement plan on their acidified loans, because they don’t have access to banks. [AMNA]

If you add almost 43 billion euros to the economy through government-sponsored subsidy programs, which account for 25% of gross domestic product, and your GDP offsets the losses in the third quarter by 13.4%, then there is no serious cause for alarm.

On the positive side, the economy is almost back to 2019 levels, but that’s because of the 43 billion euros injected, the increase in private and public consumption, and the construction of new homes with a parallel increase in the external balance of payments: That Economic model has not changed and with a few exceptions our exports remain limited, low-tech and / or expensive. Every increase in GDP is accompanied by an increase in the balance of payments deficit – which shows the country’s low overall productivity.

Some government celebrations, even extravagant ones, would not be an issue if they did not cover up inactivity that could jeopardize the economy. Including virtual reality in bad loan management.

Non-performing loans that the banking system has discharged through securitization, as well as those that will be discharged in the same way in the future, are estimated at around 100 billion euros. These loans were reportedly put into special funds to reduce them, to separate the wheat from the chaff, to help those who really want to start over, and also to shut down zombie companies to keep taxpayers and depositors losing money, to consolidate markets.

And what happened? In reality, nothing. It’s as if bad loans were gone the moment they were transferred to the funds. Or as if suddenly there was money to be spent.

Trying to get out of the rut could mean the end for some companies. Even at best, some companies’ efforts to get back on their feet are doomed to failure. Many companies are held hostage because they are denied access to banking services even though they have some kind of credit agreement. The guidelines of the Single Supervisory Mechanism (SSM) prevent banks from funding them, but without new loans these companies will not stand on their feet in the long run.

It would make more sense to find a regulation on non-performing loans, see whether companies can / will meet their obligations, determine shareholders’ willingness to pay out of pocket, and then their relationship with the banking system. None of this is done.

This is one side of the rut. The other is the zombie companies and the bad payers. Not only are they resisting debt consolidation, but many of them have become more rigid as they have received state aid with (non) repayable advances, money for rent, electricity, water, telephone, etc. with taxpayers’ money under the state subsidy scheme for the Business. Pressure can be put on them by either selling assets of their business or by reselling the business itself to new owners.

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

And what happens after the foreclosure? Well, if the gap between projected and actual NPL receipts continues to widen for the funds they bought, perhaps the $ 22 billion in government guarantees provided by the Hercules asset protection scheme will be the next victim.



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