On November 13th, Greek Prime Minister Alexis Tsipras announced a surprise distribution of €1.4 billion to millions of pensioners and low-income taxpayers, more than double the distribution announced in 2016. Tsipras could only claim the ability to return the tax haul to voters, because his government had improved the primary budget surplus well above the lender-agreed rate of 1.75%.
With the OECD now expecting the Greek economy to grow 1.1% in 2017 and 2.5% in 2018, the general mood of observers appears to have lightened, with the consensus being that stability has become the norm.
Cyprus is also basking in the positive glow of economic forecasts that see the economy growing a healthy 3% on average between now and 2020.
In late September, Standard & Poor’s rating agency upgraded its forecast on Cyprus’s credit rating to ‘positive’ from ‘stable,’ foreshadowing a likely re-evaluation next year to full investment-grade status.
With the worst effects of austerity and recession in hindsight, the focus for Greece and Cyprus has now shifted to each nation’s large portfolio of non-performing loans.
When restructured loans are included, 46% of Greek bank loans are registered in the NPL category, and Cyprus sits nearby at a close 45%. As a comparison, the European Union-wide average has fallen from 8% in 2013 to about 6% in 2017.
But even here, both nations are making strides. Greek banks trimmed their NPLs by about €3 billion (2.8%) in the first quarter of 2017. And Cyprus has cut its NPL ratio by 17% (€5 billion) over the last three years, according to Sapienta Economics.
In May, accounting major KPMG released a report on NPLs, which examined several areas of structural impediments to the NPL situation. One common critique is that there remains too much political pressure against foreclosing on residential home owners.

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During the run-up to the Cypriot crisis, for instance, enormous numbers of loans were given to residential borrowers who are now unable to repay them. This high backlog level of residential NPLs has made it difficult for Cypriot banks to continue extending credit, as many now take a ´wait and see´ approach and refuse loans to all but the most sound borrowers.
A much larger share of NPLs at Greek banks, however, stem from non-financial corporations that simply went bankrupt during the crisis. In this case, a new law – 4354/2015 – is making headway in addressing creative ways of resurrecting NPLs.
“The new legal framework holds promises for improving the stability of the banking system and supporting a faster economic recovery by facilitating the exit of non-viable firms and encouraging the growth of viable ones,” according to a legal report by Athens-based Bazinas Law Firm. “The Greek insolvency law offers tools to facilitate this, including early restructuring opportunities with a pre-pack route and debt-equity swaps, but there is room for improvement especially in the field of expediting proceedings, reducing the cost of enforcement and emphasizing a framework to support out-of-court arrangements.”
The new law is beginning to bear fruit. In October, Greece’s EuroBank sold €1.5 billion in NPLs to Sweden’s Intrum. Other banks have brought in KKR and Aktua, NPL management firms, to speed up the process.
Some bank executives have even told the press that they are foregoing NPL sales, because the new law gives them better options for collecting from debtors.
Now that the process is gaining steam, they have their work cut out for them. The European Central Bank’s Single Supervisory Mechanism has laid out a roadmap calling for all banks to reduce their NPL backlog to 20% by 2019. And 25% of the total reduction is expected by December.