The ‘Red Lights’ That Are Flaring Up Again Behind the Disappearing ‘Red Loans’

The latest published data from the Bank of Greece regarding the status of ‘red loans’, the massive pit that nearly swallowed the entire economy over the last decade, has sparked genuine excitement! The reason is that the percentage of ‘red loans’ or NPLs as they are now called, has reached European levels after decreasing in less than a decade, from about 94% to just 3.8% by the end of December for all Greek banks, compared to the European rate of 2.3% in the Eurozone. This disarmament of what was essentially the biggest bomb ever in the foundations of the domestic economy has no precedent in European economic history and perhaps even globally in proportional terms. Both in percentages and absolute numbers, this ‘disappearance’ surpasses the ‘miracles’ of Houdini. By the end of 2024, the reduction of Non-Performing Loans (NPLs) achieved in the balance sheets of Greek banks historically peaked, dropping from the terrifying 94.4% or €101.2 billion recorded in March 2016 to today’s 3.8%, roughly equivalent to 50% of GDP. However, these amounts as liabilities have not truly disappeared; they have merely shifted elsewhere, currently managed by servicers and funds. Through mechanisms like the Hercules program, loans were either sold at minimal value to funds or securitized with public guarantees, transforming them from liabilities into assets for sale. Yet, despite this transformation, the essence remains: they are still debts requiring repayment, often under altered terms without borrower consent. Overall, this financial mass, representing approximately 43% of GDP, continues to pose significant risks to the national economy, especially amidst declining real disposable income and rising trade deficits, largely owed to external parties.