Greece relies on tourists for bad credit relief

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© Reuters. A woman wearing a protective face mask walks along the Parthenon Temple on Acropolis Hill in Athens, Greece on May 17, 2021 amid the spread of coronavirus disease (COVID-19). REUTERS / Louiza Vradi

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By Karolina Tagaris

RHODES, Greece (Reuters) – Rhodes ferry operator Paris Kakas cannot afford another summer lost in the pandemic if it is ever to repay the millions of euros it owes: “When the bank asks, we say: Sorry.”

His eager wait for the tourists to return marks a crucial test for Greek banks, which are still grappling with the heaviest burden of bad debts in Europe and the legacy of the financial crisis.

Greece expects to save this summer season to avert a wave of bankruptcies among tourism companies already on their knees after a disastrous 2020.

Rhodes attracted 2.4 million visitors in 2019, but in April of this year, the daisy-covered luxury resorts and rental car parks on the Greek island near the Turkish coast gave the atmosphere of a ghost town.

The Greek central bank estimates that a quarter of the loans to the tourism sector, which in turn account for a fifth of the economy as a whole, are no longer functioning.

“We essentially stopped paying last year,” said Kakas, whose ferry company Sea Dreams saw sales decline as the coronavirus pandemic abruptly brought travel to a standstill.

While data for lending by economic sector is mixed, former Deputy Tourism Minister Manos Konsolas told Parliament in October that non-performing loans (NPLs) in the tourism industry are worth € 3 billion ($ 3.6 billion).

More worryingly, a third of all loans protected by debt moratoriums introduced in COVID-19 are in the housing and catering services at risk, according to the Bank of Greece.

And although Greek banks have lost billions of euros to NPL since the debt crisis, they still have the highest level in the European Union with 47.4 billion euros (58 billion US dollars) in NPL or 30.2% of their portfolio, more than ten times the EU average.

“For a full year of operation, some hotels have not opened, which obviously affects their books,” said Ioannis Hatzis, who owns three hotels in Rhodes and sits on the board of the country’s hotelier association.

“Any company that has tried to grow over the past few years and actually increased its debt levels cannot serve it unless tourism recovers,” he said.

“What money can you give us?”

The government has invested around € 40 billion to help businesses and has promised to withdraw support only gradually, but the tourism industry urgently needs to get back to work.

After a decade of growth, 2020 saw its worst year on record with just 7 million visitors, compared to a record 33 million in 2019. The sector had sales of 4 billion euros, less than a quarter of the 18 billion in 2019 .

This year, authorities expect vaccine rollouts to be 40% of 2019 levels.

Greece opened its doors to tourists from the EU and other key markets such as the United States, Israel and the UK on Saturday, lifting the need for quarantine as long as they were vaccinated against COVID-19 or tested negative.

For companies like Sea Dreams, which were already struggling with their debts before the coronavirus crisis, investment is being held back and another bad year could be the end.

“It’s not worth going to the bank now because whatever you tell them, they’ll say ‘OK, well, what money can you give us?'” Kakas said. “But we have no money to give you, we want you to give us money!”

Last year, Sea Dreams sold just 22,000 tickets for tourists hopping to nearby islands, visiting Turkey, or watching dolphins (up from 120,000 in 2019). Revenue fell by 75% while debt, halved to 3.5 million euros in two restructurings, still weighs on its balance sheet.

Kakas has received a government grant of € 200,000 to pay taxes, repairs and wages, and he hopes there will be enough customers this summer to cover operating costs of around € 2 million.

He relies on loans from friends and family to meet the extra cash needs and has considered sailing a boat flying a foreign flag like Panama to hire cheaper foreign crew.

But without an influx of tourists, the measures can only limit the damage.

“Those who struggled with bad loans in the booming years of 2018 and 2019 have little chance of recovering this year,” said Greek National Bank’s chief economist Nicholas Magginas.

“PROTECT WHAT I HAVE”

While repayments on bad loans in the EU went more smoothly than expected, the European Central Bank’s top regulator Andrea Enria warned Greek banks earlier this month that the crisis is not over and lenders may underestimate the risks in general.

While Greek banks have made progress in moving credit risk off their balance sheets through the government’s “Hercules” program, which runs until the end of 2022, the debt problem remains.

Hercules was launched in 2019 to help Greek banks outsource bad loans by turning bundles of debt into asset-backed securities that can be sold to investors.

Lending service providers who help collect and manage NPLs monitor nearly € 100 billion in Greek debt, half of which are securitized loans unloaded by banks, said Tasos Panoussis, chairman of their association.

This is likely to increase with more bad loan securitizations from big banks like Alpha, National Bank, and Piraeus.

Panoussis, managing director of the Greek subsidiary of Italian debt collection company doValue, said the funds were looking for amicable solutions with borrowers through restructuring to get the loans back on track.

Foreclosures are a last resort that will only be used if borrowers are “completely uncooperative,” he said.

Some of the debt that Sea Dreams borrowed has been turned over to a debt fund, and Kakas, whose business grew thanks to simple borrowing in the early 2000s, fears it could come after the collateral.

“I’m not working to make money, but to protect what I have,” he said. “I’m optimistic in the sense that the bank wants to get their money. If they force me out of work, they won’t get anything.”

($ 1 = 0.8238 euros)

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