ECB’s Draghi wants government to extend loan default auctions nationwide

European Central Bank President Mario views auctions of seized properties as a lever to pressure strategic defaulters to restructure their loans, beyond the necessity of cleaning up the hugely burdened portfolios of Greek banks.

“The holding of auctions is expected to create the appropriate incentives for borrowers and lenders to step up the process of loan restructuring,” Draghi wrote in a letter responding to a question from Greek Member of the European Parliament Nikos Hountis.

Draghi notes that Greece has made “significant progress in improving the governance of its banks” over the past year, but underlines that Greek banks’ NPEs (non-performing exposures) were a huge 45 percent of total exposures, as of June, 2017, “one of the highest levels across all countries in the banking union”.

Auctions ‘crucial’ for recovery

“It is of crucial importance for the economic recovery in Greece, and the forward looking capital adequacy of Greek banks, that progress be made on NPE resolution,” the letter states.

The ECB chief cites debt restructuring, loan sales, write-offs and liquidations as the central elements of the strategy and commitment of Greek banks to reduce NPE levels by the end of 2019.

Notably, Draghi says that collateral repossessions or liquidations are not the main axis of banks’ strategy for reducing their NPEs.

All of Greece an auction block

Welcoming the measures taken by the Greek government to establish electronic auctions in order to address the delay or cancellation of auctions by disruptive protests, Draghi nevertheless says that “further measures are needed to ensure full geographic coverage across Greece”.

Draghi opposes law protecting households.

On the issue of social protection, Draghi notes the 2010 house insolvency law, drafted by then economy minister Louka Katseli, which is designed to protect the primary residence of indigent debtors who have defaulted on their mortgage loans.

“This goes against the objective of swift NPE resolution, for instance by insufficiently deterring strategic defaulters from filing for protection or scheduling court hearings in the distant future, owing to the large number of applications that have overwhelmed the Greek judicial system,” the ECB chief stated, adding that the government has promised to address these “shortcomings” in the fourth and last bailout review, before August.

George Gilson