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'Bad bank' path too steep for Greece?

Thursday, August 27, 2015 - 01:35

Greece is under growing pressure to take care of banks' problem loans so they are free to lend again. But as Matt Gooderick reports creating a bad bank like Ireland and Spain may not work because of the depth and complexity of the Greek crisis.

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What to do when faced with more than 100 billion euros of bad loans...? That's the headache facing Greek policymakers... who're under growing pressure to get the country's banks lending again. Reuters' banking correspondent Steve Slater. (SOUNDBITE) (English) REUTERS BANKING CORRESPONDENT, STEVE SLATER, SAYING: "One of the options is to follow what Spain and Ireland did in setting up a bad bank to house all of these bad loans and then try to sell them off over the next decade." But trying to replicate the models set-up in Ireland and Spain is easier said than done. There - state-backed 'bad banks' bought bad loans from banks at knock-down prices... ...selling them onto investors, who could renegotiate terms and claw back as much as possible. But there are doubts that Greece can pull it off. Peter Dixon is from Commerzbank. (SOUNDBITE) (English) COMMERBANK, GLOBAL FINANCIAL ECONOMIST, PETER DIXON, SAYING: "I think the idea of a bad bank which allows the debt to be managed and wound down over a period of time is probably the only option that I can think of on the table, other than a massive haircut." Supporters say a bad bank is a quick way to tackle the problem. But it costs millions to set-up and can be very tough on borrowers - including liquidating companies and repossessing homes. Athens may opt for a simpler model. But decision-makers will have taken note... Six years ago Ireland's bad bank paid 32 billion euros to buy loans with a face-value of 74 billion euros from the country's stricken lenders. It expects to make up to 1 billion euros in profit, when it completes the rundown of its assets by the end of the decade.

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'Bad bank' path too steep for Greece?

Thursday, August 27, 2015 - 01:35