One in ten businesses in Greece is a “zombie” company—unable to service loans, collectively holding a staggering €42.3 billion in bad debt. These businesses, accounting for 8.9% of the corporate sector, have long been a drag on the Greek economy, earning their unenviable label as zombie firms.
In its latest quarterly economic report, the Foundation for Economic and Industrial Research (IOBE) underscores the urgency of resolving these bad business loans. It highlights that these firms, by their nature, cannot restructure their debt independently, posing a perpetual obstacle to entrepreneurial growth.
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The Scale Of The Problem
The unresolved bad loans from these zombie firms include €8.9 billion still managed by commercial banks and an additional €33.4 billion transferred to loan servicers by the end of 2022. This combined figure of €42.3 billion remains a significant burden on the banking system, stifling its ability to finance new ventures and economic growth.
The origins of this debt crisis trace back to Greece’s prolonged economic downturn. Non-performing business loans peaked at €58 billion in 2015, representing 47% of all business loans. Although this figure has declined significantly—down by €49.1 billion to €8.9 billion in 2022—the remaining €42.3 billion underscores the persistent challenge. Since 2015, the “real” reduction in business-related bad loans totals €15.7 billion.
Zombie Companies By The Numbers
The phenomenon of zombie businesses—firms unable to meet loan or interest payments—escalated during the 2010-2018 economic crisis. Between 2005 and 2013, their share rose from 10% to 18.6% of all businesses, before receding to 8.9% by 2022.
Interestingly, while smaller businesses have historically shown higher rates of zombification, large firms also exhibited notable vulnerability during the 2005-2016 period. However, since 2013, the share of zombie companies has declined across all business sizes.
A Leading Indicator Of Financial Distress
According to IOBE, the prevalence of zombie businesses closely correlates with the rate of non-performing exposures (NPEs) on bank balance sheets. Notably, the rise in zombie companies typically preceded the increase in NPEs, suggesting that the zombie rate serves as a leading indicator of financial distress in the banking sector.
More recently, the decline in zombie businesses has outpaced the reduction in NPEs. This trend, IOBE explains, stems from the protracted liquidation of companies that have ceased operations but whose debts remain unresolved. These defunct firms are excluded from databases like ICAP, which track active businesses.
Moreover, the size of the average zombie company has shifted. Before the crisis, and again after 2017, zombie firms were generally smaller, reflecting a change in the economic landscape over time.
The Path Forward
The persistence of zombie companies is not merely a banking issue; it is a systemic challenge for the Greek economy. Resolving these bad loans swiftly and effectively is essential to unlocking entrepreneurial potential and enabling Greece’s financial sector to support new business ventures.
As the IOBE report makes clear, addressing this issue isn’t just about cleaning up balance sheets—it’s about paving the way for sustainable economic growth.
