Interview with Alpha TV

Interview with Danièle Nouy, Chair of the Supervisory Board of the ECB, conducted by Vangelis Dourakis on 15 May 2018

Question: Ms Nouy, based on the stress test results, would you say that deposits in the Greek banks are now safe? Would you deposit your money in a bank in Greece?

Nouy: Well, let me start by explaining what stress tests are and what they are not. Stress tests are an exercise to assess whether the banks are able to withstand a severe deterioration of the financial conditions. Indeed, the Greek banks did well during this stress test. Also it was a tough one. It was the first time that the banks had to go through a static balance sheet exercise, meaning that it was really tough. So, yes, the situation of the Greek banks has improved. We hope that the depositors will be convinced and take back their deposits to the Greek banks. Because banking business is about confidence, so the confidence of the depositors is important.

Question: Both in Greece and abroad, NPLs are considered to be one of the major problems of the Greek banking system. What are your instructions to banks in this area? Is there a quantitative target that the Greek banks much achieve in terms of reducing their level of NPLs? What means can they use to achieve such a reduction? Do you think that e-auctions must be intensified? Should foreign NPL management companies be active in Greece?

Nouy: Let me start by the obvious on the forward-looking dimension. First of all, banks should have good credit underwriting criteria and stop producing excessive NPLs. That's for the future. Regarding the stock and the legacy, there is both qualitative and quantitative guidance. First of all, we worked on the guidance on how to identify and address properly NPLs. That was purely qualitative; that was the first step. Then we asked the banks to produce their own plans to address this issue. This is important because there are all kinds of NPLs: some NPLs are loans to corporates, loans to SMEs, loans to households and individuals. Even for households and individuals, it's not exactly the same thing to have a mortgage or to have consumer credit. This has to be taken into account. The banks have produced their own plans which have been challenged by the supervisors in case they were weak or maybe not ambitious enough, or so ambitious that they were not realistic.

We think that now we are in reasonably good shape for the first tranche, which is between the end of 2017 and 2019. And for the Greek banks to reach an average reduction of 38 percent of their NPLs is quite significant. But it is not the end of the story; there will be more efforts to be done, but quite significant ones. Because of the magnitude of the issue we need to use all possible tools. Yes, auctions are a good tool. They are also a good tool to address strategic defaulters because people that could repay their loans but don't, do it because others are not either, so why should they? Then all of a sudden they could discover that their property is up for auction and that will give an incentive to these people. All the people in fact that have provided this kind of collateral to the banks, have an incentive to discuss with the bank and to make sure that when it is possible – and quite often it is possible – the loans are restructured to make them performing again. Obviously there is a part that has to be forgiven in certain cases. It has to be provisioned by the bank or written off by the bank.

Question: Are Greek banks doing enough in order to identify the strategic defaulters and make them repay their loans? How can borrowers who, because of the crisis, have been unable to repay their loans to the bank be protected?

Nouy: Well, in all countries, including Greece, there are measures for consumer protection. The ECB is not in charge of consumer protection. There are national authorities that are in charge of consumer protection. The legal framework is already providing protection to households, retailers, and SMEs to a certain extent. If the banks are dealing with mortgages, for example, obviously if a solution can be found to make loans performing, sustainable, and forget about part of the loan but make the rest performing, that's the good way forward. There is a product that is used by a number of countries and that starts being used in Greece as well, I believe, which is a ‘split mortgage’, which makes a distinction in the mortgage between what is sustainable and what is not. And this depends on each family; it's very much case by case: you cure the sustainable part and you forget about the rest.

Question: Does the ECB have an estimate of when Greek banks will be in a position to grant more loans? And, what’s more, at lower rates so that the economy picks up again?

Nouy: Well, I think it's a virtuous circle that has to start. I think the good news related to the stress test is doing a lot to make this virtuous circle start. It means that depositors will have to regain their confidence in the banks. We are still not having deposits at the level of 2015 when the crisis started again. Also the investors have to trust the bank and to regain their confidence. This is happening already, because the use of central bank funding by the Greek banks has significantly decreased. Obviously, a key moment will be what happens at the end of the programme, which is coming soon. Is the government committed to the reforms? Is it implementing the reforms? That will be something very important for the confidence of depositors, which are mostly Greeks and the investors, who might be outside of Greece as well.

Question: When do you think that the capital controls can be completely lifted?

Nouy: Well, it's exactly the same kind of response that I provided to your previous question: it's about confidence. The government published a plan last year, a roadmap. I think it's a good plan; it has to be executed. It needs the deposits to go back to the banks and banks to be able to fund themselves on the market, which means to have the confidence of investors.

Question: In view of Greece's exit from the programme and given that it has already tapped the market – and will continue to do so – in order to build a safety buffer for next year, do you believe that recourse to a precautionary credit line would offer greater safety to Greece? Will debt relief be important for Greece's access to the market? How significant should it be?

Nouy: It's not up to me to decide about this; it's totally a decision of the Greek government.

Question: And for the precautionary credit line?

Nouy: What kind of support, certainty or whatever is needed for the investors, anything that will take place, will have to be asked for by the Greek government. It's in the hands of the Greek government, not mine; I'm just the supervisor.

Question: What is your message to our audience?

Nouy: Well, I would like to say to your audience that Greek banks have made significant efforts to improve their situation. These efforts have started to bear fruit. There are still challenges to be addressed, for sure. ECB Banking Supervision, the European Supervisor, will make sure that the efforts are continued in the right direction.