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Greek banks offload recycled politicos, but bad loans remain

Greekbanks are being forced to clear their boardrooms of political appointees,triggering searches for replacements who are at once experienced and untaintedas well as prepared to tackle crushing stockpiles of bad loans.

A deadlinefor applications for the position of chairman of , thecountry's biggest by assets, passed Sept. 25, after former Socialist Economy MinisterLouka Katseli was pushed out as a result of a law barring anyone who has held a seniorpolitical role in the past four years from bank boards.

Theanti-cronyism legislation, approved by the leftist Syriza-led government at thebehest of the country's creditors, also bans directors who have worked in theGreek financial sector in the past 10 years from heading committees that makedecisions about staffing and risk. Up to a third of board members at Greece'smain banks will have to be replaced, TheWall Street Journal reported earlier in September.

NBG'snext chairman must have atleast 10 years' senior management experience in banking plus threeyears' experience as a board member in a financial institution. Furtherreducing the pool of potential applicants could be the fear that the role is apoisoned chalice, given the magnitude of the task of returning the bank toprofit when nonperforming exposures in its home market are running at 47.9% oftotal loans, Jonas Floriani, equity research vice president at KBW, said.

"Theother thing is the challenges that this person will have to face, and therewards for it. They are not going to be getting an international banker'ssalary," Floriani said in an interview, adding that NBG, which has hiredinternational headhunters Egon Zehnder, is thought to have received more than100 applications.

Katseli'sgross compensation of €203,000 in 2015 compared to €700,000 for BancoSantander's nonexecutive director Bruce Carnegie-Brown, and £712,000 for LloydsBanking Group's chairman, Norman Blackwell.

Thebank made a €23 million loss in the second quarter of this year, although thiswas down from the €1.65 billion loss in the same period in 2015.

Nonperformingexposures contracted by €900 million in the second quarter compared to thefirst three months of the year, but further progress may be complicated by acontinuing lack of legal clarity on how to dispose of them by sales, an Athens-basedanalyst said in an interview, speaking on condition of anonymity.

"Ifthe economy doesn't rebound in 2017, these loans could become an even greaterproblem than they are already. What will the real value of these loans be ifthe economy gets worse? We don't know," he said. "There is also aproblem around the lack of visibility."

Totalnonperforming loans for all Greek banks stood at €107 billion at the end of2015, up from €90 billion at the end of 2014, according to PwC. The governmenthas moved to make it easier to sell NPLs as well as to take possession ofcollateral, but banks have made little progress, with international investorsreportedly asking for big haircuts.

"It'sa market that's been growing quite rapidly, and Greece is clearly on the radarscreen for international investors," Richard Thompson, partner at PwC,said in an interview. "For a market you need both supply and demand. Thereis clearly demand. But the banks haven't got themselves into a position wherethey can sell off the NPLs."

Therecovery rate for bad loans in Greece was recently running at about 35%,compared to a regional OECD average of 72%, according to the World Bank Group.

OtherGreek banks are also looking for new directors. 's chairman MichalisSallas stood down in July. AtticaBank SA CEO Alexandros Antonopoulos in July along with severalboard members in order to comply with conditions set down by Europeanregulators.