Greece banks on tourists for bad loan relief

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Rhodes ferry operator Paris Kakas cannot afford another summer lost to the pandemic if he is ever to repay the millions of euros he owes.

“We faced a lot of difficulties, we had a really short season – from mid July to end October with a limited number of passengers allowed on the boat,” he says of 2020. “Besides financial problems of the company we also had problems with paying the staff, who have worked for us for many years and we couldn’t give them work so they could survive.”

His anxious wait for tourists to return highlights a crucial test for Greek banks, still grappling with Europe’s heaviest burden of bad debts and the legacy of the financial crisis.

Greece is counting on salvaging this summer season to head off a wave of insolvencies among tourism businesses, already on their knees after a disastrous 2020.

Rhodes attracted 2.4 million visitors in 2019 but in April this year, when tourists should have already arrived, shuttered luxury resorts gave the Greek island the air of a ghost town.

The Greek central bank estimates that a quarter of loans to the tourism sector are now non-performing. A third of all loans protected under debt moratoria introduced when COVID-19 struck are in the accommodation and food services sector, according to the Bank of Greece.

Former deputy tourism minister Manos Konsolas told parliament in October that non-performing loans (NPLs) in the tourism industry came to 3 billion euros ($3.6 billion).

And despite shedding billions of euros of NPLs since the debt crisis, Greek banks still have the highest levels in the European Union, with 47.4 billion euros ($58 billion) of NPLs, or 30.2% of their portfolios, more than 10 times the EU average.

While Greek banks have made progress in shifting loan risk off their balance sheets through the government’s “Hercules” scheme that runs until late 2022, the debt problem remains. Hercules was launched in 2019 to help Greek banks offload bad loans by turning bundles of debt into asset-backed securities that can be sold to investors.

“For one entire year of operation, some hotels did not open so this is obviously affecting their books,” said Ioannis Hatzis, who owns three hotels on Rhodes and is a Greece’s hoteliers federation board member.

“Any corporation that tried to grow in the past years and has actually increased debt will not be able to service it if tourism does not bounce back,” he said, adding, “The government here has to understand that they have to use Greek funds, Greek enterprises that are healthy the moment they go away from covid, they have to facilitate growth to these companies so that growth will come back to country… so that we can have new jobs.”

The government has pumped in about 40 billion euros to help businesses but the tourism industry – which employs one in five – badly needs to get back to work.

It suffered its worst year on record in 2020, with just 7 million visitors compared to a record 33 million in 2019, while revenue reached only 4 billion euros, compared to 18 billion in 2019.

This year, as vaccines are rolled out, the authorities are counting on 40% of 2019 levels.

Greece opened its doors to tourists on Saturday (May 15) from the EU and other key markets such as the U.S. and Britain, lifting the need for people to quarantine as long as they have been vaccinated or tested negative for COVID-19.

For companies such as Sea Dreams another bad year could mean the end. Last year, it sold just 22,000 tickets, down from 120,000 in 2019. Its revenue plunged 75% while its debt, which was halved to 3.5 million euros in two restructurings, is still weighing on its balance sheet. Kakas took a 200,000 euro state subsidy to pay for taxes, repairs and wages and hopes there will be enough customers this summer to cover about 2 million euros in operating costs. He also depends on loans from friends and family. Part of his debt has been passed on to a debt fund and Kakas worries they may come after the collateral.

“They (the government) could help the company, if not financially with cash then to remove some of our obligations, such as to the banks and taxes,” said Kakas.

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

via Reuters