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ATHENS (Reuters) - Greek banks are being urged to address their high load of bad loans to be able to fully fund the economy and those still holding assets they can liquidate should be "the first to be targeted" in this effort, a source said on Wednesday.
The country's banks, which entered the 2008 crisis with bad loans, or non-performing exposures (NPEs), of 14.5 billion euros ($15.4 billion), or 5.5 percent of their loan books, saw them rise to 106.9 billion, or 50.5 percent, last year.
The Bank of Greece, in cooperation with European Central Bank, is monitoring the implementation of banks' NPE action plans and progress versus agreed reduction targets.
"Addressing NPEs which are very high is very important. Banks are overloaded and not able to fully fund the economy," the source said, speaking on condition of anonymity.
Banks have agreed with regulators on ambitious bad debt reduction targets spanning a 3-year time horizon.
Their aim is to cut their NPEs to 66.7 billion euros by 2019 from 106.9 billion in September, meaning their NPE ratio to fall to 34 percent from 51 percent.
The source said there was no reason to change targets for NPEs, which include loans past due more than 90 days and restructured credit likely to turn bad.
"They are medium-term targets. The beginning of the year was a bit disappointing," the source said. The fast enactment of legislation on out-of-court settlements and bankers' protection from litigation over the workout of bad loans would be helpful.
"Sometimes legislators are slow to make reforms but that's democracy. Delays on voting the laws is not helping in this regard," the source said.
The source also urged fast completion of Greece's drawn out bailout review, which would send a positive signal to markets, investors and boost confidence in the sector.
"We have to get a virtuous circle started, time lost here is not good."
Bank of Greece Governor Yannis Stournaras told the bank's annual meeting in February that although bad loan volumes eased last year, January saw a pick up in new exposures, caused by the uncertainty over the country's tortuous bailout review.
As lenders seek to shrink NPEs mainly through a curing of loans and write-offs and to a lesser extent by liquidations, collections and loan sales, the Bank of Greece is working to designate bad loan servicers.
"Strategic defaulters (those with assets to sell) should be the first to be targeted," the source said. "Repossession of collateral would raise awareness that banks are taking action."
(Story refiles to fix typo in headline.)
Editing by Jeremy Gaunt.