The percentage of cash-strapped Greek households stood at 2.16% of all households before the inflation shock and is estimated to increase by 0.43% as a result.
In an increase of “red” loans that the banks have granted to households will lead to a jump in inflation and interest rates in the Eurozone, according to a report by the European Central Bank on financial stability (Financial Stability Report).
The ECB used data on the income situation of borrowers from its Household Finance and Consumption Survey, which was carried out between 2016 and 2018, to estimate the impact on households’ ability to repay their loans. To overcome the fact that the figures refer to previous years, he proceeded to project the figures to 2022, taking into account the evolution of the main economic variables.
In the downside scenario, the central bank estimates that non-performing loans (NPLs) of Eurozone banks will increase by 80 basis points (0.8 of a percentage point) but from a very low level and will mainly concern loans held by low-income households.
For Greek banks, the NPL ratio is expected to increase marginally in the baseline scenario and more significantly in the downside scenario.
Specifically, the base scenario foresees an increase in NPLs to 6.77% from 6.71% for housing loans and to 3.23% from 3.21% for consumer loans. This scenario is based on the assumption that they will “red” the loans of all households whose disposable income is not sufficient for their basic needs – food, energy and housing – and the payment of their loan installments and in addition deposits or other cash their assets are not sufficient to cover their needs even for a month.
These households are considered to be illiquid and are located mainly in the lowest income category. According to the ECB, the percentage of Greek households lacking liquidity, based on the above definition, was 2.16% of all households before the inflation shock and is estimated to increase by 0.43% because of it.
The downside scenario estimates that the NPL ratio will rise to 8% for mortgages and 3.59% for consumer loans. The assumption in this case is that all loans to households with insufficient disposable income, but which have liquid assets to cover their basic expenses and their loan installment expense for up to 12 months, will also be reddened. These households are considered to be under pressure (distressed). The EKT notes that the course of their loans will depend on the course of their real income this year and in 2023 and on state support measures.
As inflation is driven by energy and food prices, the impact is greater on the lowest-income households, who spend a much larger proportion of their income on these needs. Across the Eurozone as a whole, the poorest households have 70% of their income to cover basic needs compared to 34% which is the corresponding percentage for middle income households.
RES-EMP
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