Without an overhaul of laws and processes for bad-debt resolution and bankruptcy, Greece’s banks will be unable to clean up their balance sheets, or regain the trust of depositors and investors. Bankruptcy hearings can currently be put off for over a decade. Laws also make it very hard to repossess primary residences, encouraging people to default.
Almost 40% of domestic loans were nonperforming even before the banks closed in June and capital controls imposed, severely disrupting the economy.
A trickier problem is the question of deferred tax assets and credits, which account for almost half of the combined equity of the four main banks. These can’t soak up losses as equity should. They rely on billions of euros in future payments from the Greek government, which it could struggle to honor.
... Some in Greece argue that directed lending and other political meddling are in the past. However, that doesn’t mean they will never reappear. The total lack of trust from Europe means Greece won’t get any money without meeting these demands.
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