ATHENS (Reuters) - Bad loans pose a major challenge to Greek banks but the sector has improved "substantially," European Central Bank supervision chief Daniel Nouy told the Athens News Agency on Tuesday.

"The situation of the Greek banks has improved noticeably and substantially in the last two years both in terms of capital adequacy and in terms of governance," Nouy said. "Now, the major challenge is to deal with the non-performing loans.

"I am optimistic that with the new legal framework expected to be enacted soon this challenge will be addressed as well."

Greek banks face a mountain of bad loans and have been given targets by the ECB and the Greek central bank to reduce them by nearly 40 billion euros by the end of 2019, from 106 billion currently.


(Reporting by George Georgiopoulos; Writing by Karolina Tagaris; Editing by Larry King)

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