Financial distress of industrial firms on the Greek banking system

Since the late 1970s, industrial activity in Greece has been deteriorating rapidly. An increasing number of industrial firms have experienced distress and failure. Because of their extensive indebtedness, the widespread distress of industrial companies has affected the soundness of Greek banks. This paper discusses the extent and causes of financial distress in Greek industry and the importance of its impact on the banking system and the country's economy. The authors outline the main goals or targets of reform in three areas : 1) macroeconomic reform through the reduction of inflation and the public deficit; 2) financial reform : a) free interest rates determined by market conditions; b) reduction of the public deficit and the public sector borrowing requirement; c) modernization of banking activities; d) prudential regulation and supervision of banking, aimed at restoring investor confidence; e) strengthened capital market with more tradable bonds and other securities; and 3) industrial restructuring : a) repayment of foreign debt of problematic companies through the Business Reconstruction Organization; b) repayment of domestic debt; c) systematic liquidation of nonviable companies; and d) restructuring of problematic but viable companies.