Despite some encouraging signs of progress in 2018, Greece needs "more ambitious" solutions to speed up the reduction of toxic loans in the financial system, the Bank of Greece SA's interim monetary policy report said.

The high level of nonperforming exposures, or NPEs, in the banking system means that lenders have little capacity to extend credit. The bank highlighted in the Dec. 20 report the importance of the cleanup to Greece's broader growth path, noting that economic recoveries where little or no credit is available are often very weak.

NPEs at the end of September came to €84.7 billion, a €9.7 billion reduction from end-December 2017 and €22.5 billion, or 20%, lower than their March 2016 peak, according to Bank of Greece data. While the pace of NPE reduction is improving, it is not fast enough, the reported said. Most of the reduction this year came from loan write-offs (€4.4 billion) and portfolio sales (€5.2 billion).

E-auctions, which began in April as a means of helping banks shift foreclosed property off their books more efficiently, have gone some way to helping improve proceeds from liquidations, the report said. But the total amount that banks have recovered this way "remains low."

The Bank of Greece put forward a proposal in November for a special purpose vehicle that would function in a similar way to bad banks in Italy and Spain, allowing banks to transfer some of their nonperforming exposures off their balances sheets.

This received a mixed reaction from analysts and industry insiders when it was first mooted, with some commentators saying that lenders should do more to make use of the tools already at their disposal for cutting bad debts rather than falling back on "immature" solution from the Bank of Greece.

The Bank also recommended rebalancing Greece's fiscal policy mix toward lower tax rates and a reallocation of public spending toward areas of the economy that will have a "permanent" impact on boosting economic growth in the long term, such as infrastructure.

It called for a speeding up of Greece's privatization program and for greater efforts to attract foreign investment, such as cutting red tape and improving the efficiency of public administration.

The interim report is the central bank's first since Greece exited its €260 billion-plus bailout from eurozone partners and the IMF in August.

The end of the bailout was a "milestone" for Greece, but the country will need to make a sustainable return to the international bond markets if it is to truly put the economic crisis behind it, the Central Bank report said.