March 30, 2017 / 3:55 PM / in 4 months

UPDATE 1-Greek banks Alpha, NBG returned to profit in 2016, aim to cut bad debts

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* Alpha posts 42.3 mln euro profit in 2016

* Non-performing loans ease to 38.1 pct of book

* NBG earns 53 mln euros in 2016, cuts NPEs by 2.8 bln euros (Adds CEO comment, NBG results)

By George Georgiopoulos

ATHENS, March 30 (Reuters) - Greek banks Alpha and National (NBG) returned to profitability last year, aiming to stay the course in 2017 and further reduce their huge stock of bad loans.

Alpha Bank, Greece's fourth-largest lender by assets, made a profit for the second straight quarter in the final three months of the year, as improved net interest income offset higher provisions for impaired loans.

The bank, 11 percent owned by the country's bank rescue fund HFSF, reported a net profit of 20.1 million euros ($21.6 million), down from net earnings of 41.2 million in the third quarter.

For 2016 as a whole, Alpha posted a net profit of 42.3 million euros, which compared with a loss of 1.37 billion in 2015.

Greek banks are continuing to struggle with problem loans after a deep, protracted recession pushed unemployment to record highs, making it hard for borrowers to service their debts.

Banks entered the 2008 global financial crisis with bad loans, or non-performing exposures (NPEs), of 14.5 billion euros, about 5.5 percent of their loan books. NPEs rose to 106.9 billion euros, or 51 percent, last year.

Banks have agreed with regulators on ambitious bad debt reduction targets over three years.

They aim to cut their NPEs to 66.7 billion euros by 2019 from 106.9 billion in September, to bring their ratio to 34 percent from 51 percent.

"In 2016 we delivered a profitable performance despite significant provisions of 1.2 billion euros for the year," Alpha's chief executive Dimitris Mantzounis said in a statement.

Greek lenders are also grappling with funding gaps after a deposit flight that led to capital controls in June 2015 and still depend on central bank funding to plug the hole.

"We reduced Eurosystem funding exposure by 25 percent and further diversified our funding sources away from central bank borrowing," Mantzounis said.

Alpha's non-performing loans ratio eased to 38.1 percent of its book at end-December from 38.3 percent at end-September.

Peer National Bank also swung to profit last year. It posted net earnings of 73 million euros in the last quarter, excluding assets held for sale and discontinued operations.

For 2016 as a whole, the bank posted a net profit of 53 million euros after a loss of 2.49 billion in 2015 as loan impairment charges fell to 684 million euros from 3.52 billion in 2015.

NBG's chief executive Leonidas Fragiadakis said the group reduced its non-performing exposures by 2.8 billion euros last year, exceeding targets by half a billion.

"In 2017 our strategic priorities include further reducing our NPEs, in line with targets agreed with the ESM, and the significant decrease of our exposure to ELA (emergency liquidity assistance provided by the Bank of Greece)," he said. (Editing by Greg Mahlich)

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