Greek banks beat bad loan target but now on shaky ground

Bank of Greece property

Greece's lenders managed to beat targets on reducing non perfoming loans at the end of last year, according to the Bank of Greece. But a faltering economy in the first few months of the year may result in this year's efforts to reduce bad loans missing the mark, say economists.

A report produced by the Bank of Greece, the country's central bank, on Wednesday showed that lenders reduced non performing loans at the end of 2016 to 104.8 billion euros, or 50% of their total loan book. This beats the target of 105.8 billion euros, 50.5% of total loans, set by European banking authorties.

Eight years into Greece's severe economic downturn, Greek banks have been slow in tackling the bad loans festering on their balance sheets. This is preventing them from lending to businesses and consumers and helping the economy to start growing again. It is also weighing on the real estate market, as many property assets are tied up in these problem loans.

Greece's lenders must reduce exposure to bad loans by 40 billion euros by 2019, according to targets that have been agreed upon in the sector.

Although loan trends for banks improved last year, a weaker than expected start to the year for Greece's economy due to delayed bailout talks with creditors is likely to harm efforts to meet future goals.

Greece's economy was expected to rebound in 2017 by expanding 2.7% but many economists now see the growth rate at between 1% to 1.5%.