“Hercules” plan to clear NPLs comes to parliament

“Hercules” plan to clear NPLs comes to parliament

The government tabled a draft bill in parliament on Tuesday, containing the “Hercules plan” to address non-performing loans (NPLs) sitting on the books of Greece’s banks. A final vote on the draft legislation will take place in the House on Thursday.

The scheme – which has already been granted approval by the European Central Bank (ECB) – provides for an initial 12 billion euros to be used as state guarantees for banks offloading NPLs from their books. 

The legislation outlines the details, terms and conditions on which the state guarantees mixed with securitization will be provided, using a similar model applied in Italy (GACS) as a guideline, albeit customized to suit the Greek banking system.

As things stand, the country’s lenders have about 75 billion euros worth of NPLs sitting on their books, following the decade-long economic crisis.

Via “Hercules”, the Greek state will issue up to 12 billion euros of guarantees that banks can use as they bundle together their bad loans and separate them according to risk. The Greek state will guarantee the “senior” tranche, while the “mezzanine” and “junior” tranches will be less protected.

Banks will retain the senior tranche on their balance sheets, selling the rest or distributing them to investors. As a result, lenders will reduce NPLs by about 40 percent.

According to the Ministry of Finance, the plan will not impact on taxpayers, while the state will also benefit from commission on the guarantees it will provide, determined by the market.

Finance Minister Christos Staikouras presented the “Hercules” project to investment fund managers at the Capital Link forum in the US this week.

Government sources point out that the Mitsotakis administration is keen to appear decisive and determined to swiftly deal with the long-standing issue of NPLs, in order to send a clear message that the Greek banking system has fully recovered from the effects of the crisis./ibna