Bank of Greece, the central banking authority of the country, has proposed a new plan in a bid to reduce the burden of bad loans on banks, Reuters has reported.

Under the new proposal, the banks will transfer a section of their non-performing exposures (NPEs) and deferred tax claims to a special purpose vehicle through a bond issue.

Subsequently, the vehicle will convert the deferred tax claims to a claim on the state.

However, the proposal did not specify the value of NPAs to be transferred in the process. But it added that the whole process will be carried out by independent third parties.

In Europe, the Greek banks have the highest ratio of NPEs. Nearly 45% are classified as bad loans, valuing approximately €88.9bn.

With the new move, the central bank aims to reduce bad loan burden on the financial institutions to a single-digit ratio within two to three years.

Accordingly, it will also help the banks to meet the regulatory deadline.

As per an agreement signed with the European Central Bank regulators, all the domestic banks in the country have to reduce the share of bad loans to €64.6bn by the end of next year.

A Bank of Greece official told the news agency: “The plan has been sent to the Single Supervisory Mechanism (SSM) and will be presented next Monday.

“The Central Bank of Greece is attempting, in tandem with the efforts of banks, and bearing in mind any legal limitations, to drastically reduce NPLs so they fall to the European average by 2021.”