Greek banks look for solution to consumer debt

19/09/2012

As the default rate for consumer debt nears 20 percent, some banks are renegotiating payment schedules while others are taking a harder approach.

By Andy Dabilis for Southeast European Times in Athens -- 19/09/12

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A counselor at the consumer advocate agency EKPOIZO in Athens helps a client. [Andy Dabilis/SETimes]

Greek banks that have billions of outstanding government loans that are at risk of default should the EU-IMF-ECB Troika not issue another bailout are becoming more aggressive in collecting consumer debt.

Banks are negotiating terms with numerous borrowers – and in some cases resorting to phone calls and threatening lawsuits – as the nation's consumer default rate tops 18 percent, according to analyst reports.

Some consumer advocates say banks are being too aggressive, but one official said bankers are working with consumers to lower interest rates and negotiate longer repayment terms.

"Customers do have problems [with collection companies] but when the banks tell them 'Don't bother this customer because they are paying,' the companies stop calling," said Dimitris Pavlakis, ombudsman for the Hellenic Bankers Association, which successfully settles 70 percent of consumer complaints.

Already recapitalized once this year after a previous government imposed 74 percent losses on banks and investors to write down the country's debt, Greek banks are so shaky that they need another 50 billion euros injection in cash that has been stalled while the coalition government led by Prime Minister Antonis Samaras readies another $14.16 billion in cuts.

The EU-IMF-ECB Troika has issued 239 billion in bailouts so far in exchange for Greece agreeing to implement dramatic austerity measures. Greece is in a five-year recession with 24 percent unemployment, 68,000 businesses shuttered since 2010 and the economy shrinking 7 percent.

Greek banks have 16 billion euros out in loans to the government and about 24 billion euros of holdings in government bonds that would likely be in default if the Troika holds back the second bailout, leaving the institutions in a precarious position.

A Moody's report in August showed that the number of non-performing consumer loans reached 18.7 percent in the first quarter and Greek bank analysts said it is likely 20 percent or more now, with bad loans totaling 50 billion euros, a 400 percent increase since the beginning of 2009. The National Bank of Greece said that lending to Greek households and companies stood at 240.2 billion euros at the end of June.

Manolis Chrysakis, an economist for the National Centre of Social Research in Athens, said banks have themselves to blame for not giving customers options for repayment and failing to recognize many can't pay because of deep salary cuts, tax hikes and slashed pensions. "The banks have not demonstrated a willingness to do that," he told SETimes. "They should apply more programs to let people restructure."

An analysis by the New York-based CEIC's ISI Emerging Markets division in May said that Greek banks – two of which have already been forced into privatization because of pending insolvency – were straining under the weight of "rampant" defaults in consumer loans, which hit 28.9 percent in the fourth quarter of 2011. CEIC blamed the austerity measures.

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Georgina Douzeni, a lawyer for the consumer advocate group EKPOIZO, said the group handled more than 7,000 complaints against bank collection practices in the past year and that there is a growing use of collection agencies hounding people who can’t pay. "They are tactless and attack them, asking personal questions and trying to find out why they cannot pay their debts," she told SETimes, adding that they also violate laws restricting them to one call every two days.

Anastasios Dermos, 70, a pensioner, told SETimes he was so badgered that he gave up resisting and asked his daughter to take out a loan to repay a loan he couldn’t repay because his benefits had been slashed.

"I was getting called three times a day and they were threatening me ‘We'll take your house.’ They were demanding. These people are monsters," he said.

(Dow Jones, 18/08/12; Bloomberg, 18/0812/ Wall Street Journal, 17/08/12; Kathimerini, 02/08/12, 14/08/12)

This content was commissioned for SETimes.com.
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