Master Thesis Digital Banking & Financial Technology

particular solutions were supplied to viable customers experiencing transitory 
difficulties. However, the net inflow of non-performing loans became positive again in 
the second quarter of 2022, while the growth in early arrears (loans less than 90 days 
past due) in that quarter may be an early indicator of pressure on the asset quality of 
banks in the near future. The deteriorating macroeconomic outlook and rising interest 
rates on the majority (75%) of variable-interest loans have an impact on the 
disposable income of families and may accelerate the influx of nonperforming loans. 
Yet, this could be substantially mitigated by the budgetary support measures already 
in place. As a result of the uncertain economic climate, banks are currently changing 
their non-performing loan strategy by increasing their forecasts for new non-
performing loan inflows and provisioning requirements (European Union, 2022).
Slowly, legacy non-performing debt is being restructured. 87 billion euros of 
private debt has left bank balance sheets but remains in the economy, managed by 
non-bank financial organizations with specialized expertise (i.e. credit servicers). This 
is a drag on the economic recovery and decreases the opportunity for banks to 
conduct business on the local market. Despite the fact that the majority of securitized 
non-performing loan portfolios outperform their business plan objectives, there have 
been instances of divergence in relation to these objectives, in part because to the 
protracted suspension of enforcement proceedings during the pandemic. Taking 
advantage of the gradual resumption of the debt collection process as of April 2021 
as well as sales of loan portfolios on the secondary market for nonperforming loans, 
servicers are adopting targeted measures to gradually reduce these disparities. 
These sales will increasingly include loans that have been restructured and are once 
again performing. The ability of credit servicers to promptly resolve and restructure 
debts, as well as the efficient operation of the secondary market for non-performing 
loans, will be crucial to economic performance and will be reviewed continuously. 
The authorities are supposed to continually reevaluate the present monitoring 
mechanism and suggest modifications, if necessary, to ensure its efficacy (European 
Union, 2022). 
Although being buoyed by one-time gains, the profitability of banks is rising 
and might be bolstered by the banks' loan expansion and rising interest rates. The 

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first half of 2022 was profitable for all four systemic banks because to one-time 
trading gains, consistent fee and commission increases, and efficient cost 
management. The banks' net interest revenue has been stable due to new lending 
and the decline in the cost of risk as a result of the repayment of nonperforming loans. 
These variables have substantially mitigated the income impact of the steep loan 
book deleveraging in 2021, while simultaneously enhancing the quality of the 
revenue mix. It is anticipated that the tightening of monetary policy will increase the 
net interest margin of banks, given the significant proportion of loans with variable 
interest rates in their loan books. This tendency, along with the realization of banks' 
objectives to expand net lending, particularly in the business sector, should aid in the 
short- and medium-term maintenance of profitability. Due to their significant holdings 
of domestic sovereign bonds, systemic banks have taken measures to mitigate the 
impact of volatility in sovereign yields on their profitability by increasing the proportion 
of their sovereign bond portfolio valued at amortised cost to 80% and implementing 
hedging strategies for the remaining portion (European Union, 2022). 
The capital position of banks is being steadily recovered, but the quality of 
capital remains an issue. The regulatory phase-in of IFRS 9 accounting regulations 
worsened banks’ capital position, but the earnings of the first half of 2022 and the 
lower provisioning needs have largely offset this impact. The average Common 
Equity Tier 1 and Total Capital ratios of banks at the end of June 2022 were 13.2% 
and 15.9% of risk-weighted assets, compared to 12.5% and 15.9% at the end of 
March 2022. The banks plan to bolster their capital position through internal capital 
creation and upcoming capital-enhancing measures (e.g. sale of non-core 
businesses and synthetic securitisations). While banks have already fully provisioned 
for the transfer of the relevant loan portfolios, the completion of the other three 
nonperforming loan securitisations under Hercules will offer banks with additional 
capital relief from the state guarantee granted on the retained senior tranche. 
However, the capital position of Greek banks remains one of the lowest in the EU, 
and the quality of their capital remains a concern, as it contains a substantial and 
rising proportion of deferred tax credits (about 64% of consolidated supervisory 
capital at the end of March 2022) (European Union, 2022). 
Notwithstanding strengthening fundamentals, banks face obstacles and 
negative risks that must be closely monitored. Profitability and the ability of banks to 
generate capital internally could be negatively impacted by a) a potential 
deterioration in asset quality as energy costs and interest rates rise and reduce the 
ability of debtors to repay, b) a possible reduction in credit demand in the event of a 
recession, and c) increases in their cost of funding. The cost of long-term unsecured 

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funding for Greek banks has already risen, which, if prolonged, could alter their 
strategy for future debt issuances to meet the MREL, both in terms of time and kind 
of instruments released. Moreover, the repayment of the most recent round of 
targeted longer-term refinancing operations (TLTRO III), which is nearing its 
conclusion, may still result in an increase in the cost of funding for banks and a 
potential decline in their prudential liquidity ratios, particularly if deposits decline and 
long-term unsecured funding remains expensive. On the other hand, the substantial 
proportion of currently committed collateral under TLTRO III that is eligible for 
Eurosystem funding via the standard refinancing instrument is anticipated to support 
liquidity ratios (European Union, 2022). 
In nominal terms, the growth of credit extended to non-financial firms has 
accelerated in 2022. In September 2022, the annual growth rate of lending to non-
financial firms reached 12.3%, up from 3.7% at the end of 2021. From January to 
September 2022, a sizeable cumulative net credit flow to non-financial firms of EUR 
5.1 billion was recorded, comparable to the flow for the same period in 2020 and 
significantly greater than the entire net credit flow in 2021. This was mostly the result 
of capital flows to large nonfinancial firms. The rise in gross new lending to families 
was more than offset by the payback of existing mortgages, resulting in a negative 
net credit growth for housing loans. Notwithstanding a spike in September, the 
average cost of bank lending to businesses has increased by only 3.1% in 2022 and 
is still lower than that to micro businesses and individual entrepreneurs (5.3%) and 
consumers (5%). The Hellenic Development Bank terminated operations under the 
Covid-19 Enterprise Guarantee Fund in June 2022, having disbursed a total of EUR 
6.2 billion in loans since the fund's creation in 2020. It is currently launching new 
small- and medium-business loan programs for late 2022 and early 2023. Given the 
amount of loan applications and signed loan contracts, loan disbursements related to 
the RRF Lending Facility are anticipated to increase beginning in 2023. In the future, 
credit demand should gain from a reduction in risk aversion as a result of an overall 
improvement in the medium-term economic outlook, but in the short term, it may be 
negatively impacted by slower economic growth, greater inflation, and rising interest 
rates (European Union, 2022). 

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Image 10 Bank credit and deposit trends 
https://economy-finance.ec.europa.eu/system/files/2022-
11/ip191_en.pdf
  
Image 11 Bank credit and deposit trends 
https://economy-finance.ec.europa.eu/system/files/2022-
11/ip191_en.pdf
  
With the amended legal framework, the Hellenic Financial Stability Fund has 
begun operations. The legislation revision was published in June 2022. Since then, 
the Fund has modified its governance by establishing a new Board of Directors to 

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replace the old dual system. The bill prolonged the tenure of the Fund to the end of 
2025 so that it can more effectively achieve its dual purpose of helping to the stability 
of the Greek banking system and disposing of its assets. In this regard, the Fund has 
already enlisted the assistance of independent private consultants to formulate and 
implement its divestiture strategy in accordance with the recent reform. In addition, 
the Fund has decided to participate in the second share capital increase of a smaller 
institution in which it already holds a controlling ownership. The capital increase will 
total 490 million euros and will be implemented throughout 2022. The three primary 
shareholders, including the Fund, will contribute around 459 million euros (European 
Union, 2022). 
4.4. Policies in Greece 
Under the new insolvency framework, the usage of electronic platforms is 
gradually gaining traction. This is especially true for out-of-court workout and second 
chance (i.e., insolvency proceedings) platforms. For the rehabilitation and early 
warning mechanisms, which could benefit from increased knowledge, there is less 
interest. The consistent flow of completely submitted petitions to the out-of-court 
settlement mechanism has maintained, reaching 9,600 by the end of October 2022, 
representing 5 billion EUR in debt. 43% in terms of loan value (EUR 2.1 billion) of 
these fully submitted applications had been evaluated by the end of October, 
resulting in the restructuring of EUR 511 million worth of debt, where the restructuring 
proposal was accepted by both creditors and debtors, with an additional EUR 273 
million awaiting implementation. The completed reorganizations involve an average 
haircut of 19.5% for debts owed to the government and 30.7% for obligations owed to 
financial institutions. In the following months, the rate of successful restructurings is 
anticipated to accelerate significantly. Simultaneously, the authorities are focusing 
their efforts on improving the approval rates of creditors and debtors for the 
restructuring proposals generated by the platform's algorithm, as well as addressing 
data quality issues that are dragging down the overall process. The efficiency of each 
component of the insolvency framework will be continuously monitored as part of 
postprogramme surveillance (European Union, 2022). 
The implementation of other agreed-upon banking sector activities generally 
advances on time. This pertains to the execution of the Sale-and-Leaseback entity 
and the elimination of household insolvency case backlogs and is referred to as 
governmental guarantees. The number of auctions continues to increase, but the 

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large proportion of empty auctions (auctions with no buyers) remains a cause for 
concern. Taking into account seasonality, the upward trend in the conduct of auctions 
as compared to the same period in prior years was verified. 75% of the 12,252 
auctions scheduled for the third quarter of 2022 were conducted, 25% were 
suspended, and a minor number were canceled for procedural reasons. Nonetheless, 
the high proportion of fruitless auctions remains a cause for concern, with around 75% 
of concluded auctions resulting in fruitlessness and only 25% being fruitful. The 
recently implemented automatic reserve price adjustment system is anticipated to 
reduce the number of empty auctions in the next months, but the ratio is anticipated 
to stay high, which is cause for concern. The high percentage of barren auctions is 
attributed to the following factors: a) inadequate streamlining and dissemination of 
information on post-auction steps, coupled with cadastre registration delays; b) 
ineffective post-auction eviction process; c) insufficient financing for potential 
interested auction buyers; and d) overall low market demand for certain assets. 
Positively, an increasing proportion of transferred properties (about 60%) were 
acquired by third parties during successful auctions (European Union, 2022). 
Recent rulings of the Supreme Court may have a disruptive impact on 
enforcement actions. As reported and evaluated by the authorities, a chamber of the 
Supreme Court has issued contradictory rulings regarding the legitimacy of credit 
servicers to proceed with auctions and other enforcement procedures in the name 
and on behalf of the foreign special purpose vehicles they represent. According to 
the authorities, the matter has been referred to the Supreme Court's plenary 
formation. The date and outcome of the Supreme Court's final decision are, 
nevertheless, uncertain. The problem at hand is likely to influence forthcoming lower-
court judgements in comparable cases and diminish the debtors' willingness to 
negotiate reasonable restructuring options with servicers. This legal ambiguity might 
hinder attempts to resolve non-performing loans and pose a significant threat to the 
business plans for non-performing loan securitizations under the Hercules program. 
Legal ambiguity must be resolved as soon as possible to prevent future unnecessary 
delays in the resolution of non-performing debt in the economy (European Union, 
2022). 

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References 
Arda, A. and Dobler, M.C. (2022). The Role for Deposit Insurance Funds in Dealing 
with Failing Banks in the European Union.