Millions of unresolved non-performing loans from the last decade's debt crisis remain a drag on Greece's rebound, preventing many households and small businesses from accessing credit and slowing wider economic growth, an International Monetary Fund official told Reuters.
Charles Cohen, an IMF specialist in financial markets, estimated that nearly 3 million non-performing loans are affecting about 2.4 million people. The volume, he said, has strained the Greek lending infrastructure: without clearing those legacy debts, many ordinary Greeks will be unable to re-enter mortgage and small-business lending markets.
"This is a massive number for the Greek economy," Cohen said. "The system has been a bit overwhelmed by them. And so we think that need to be reforms."
Greece's banking sector endured a dramatic shock during the 2009-2018 crisis when banks recorded catastrophic losses on government bonds and a wave of defaults pushed non-performing loans to almost 50% of loan portfolios. The banking system has since undergone a number of structural changes: banks have been re-privatised and bailout loans are being repaid ahead of schedule.
Yet these institutional fixes have not translated into broad-based access to credit for households and small and medium-sized enterprises. Many Greeks who experienced wage and pension cuts during years of austerity remain effectively excluded from borrowing, a condition Cohen described as a key drag on recovery.
"The big thing is the repair of household balance sheets," Cohen said. "You need to create a situation where the average Greek is again an active participant" in markets for mortgages and small business loans.
Policy steps have addressed part of the problem. In 2019 Greece established a secondary market for bad loans together with an asset protection scheme, enabling banks to securitise and transfer roughly 60 billion euros of non-performing loans to external servicers. But authorities and the IMF say the response has been slower than desired.
Operational hurdles persist. Court disputes involving banks, servicers and mortgage borrowers can take years to resolve, in part because court dockets are overloaded and there is a shortage of judges specialised in these complex financial cases. "The dockets are somewhat overwhelmed because you don’t necessarily have judges who are specialized in these kinds of issues. So they take a long time to get through the system," Cohen said.
As a consequence of the continued exclusion of many small businesses from formal finance, banks have concentrated lending on a narrower set of large Greek corporates. IMF officials warn that this concentration leaves the corporate sector more exposed to international shocks because credit flows are less diversified.
"Lending to small and medium (businesses) remains at low levels," Cohen said. "I think for us the critical factor there is to try to re-diversify the banks into lending into these sectors. That’s not an easy thing to do."
In short, the legacy of accumulated non-performing loans is not just a balance-sheet issue for banks: it is a constraint on household balance-sheet repair, credit availability for SMEs, and the broader re-normalisation of credit channels that underpin sustainable growth.
What this means
- Large volumes of legacy bad loans are keeping about 2.4 million people and many small firms outside mainstream lending markets, limiting demand for mortgages and small business credit.
- Measures taken in 2019 to securitise and transfer about 60 billion euros of non-performing loans helped, but legal and administrative bottlenecks are slowing the process.
- Banks' concentration of credit toward a smaller number of large corporates increases vulnerability to international turbulence and leaves SMEs underserved.