There are a lot of moving parts in the government’s attempt to create a scheme for guaranteeing the transfer of some bad loans from bank portfolios so as to improve their financial reports.
The plan, which came to fore after the selloff in bank stocks and was used in an unprecedented effort to contain the bearish mood on the Athens Exchange, is a particularly complex endeavor with many technical difficulties that render it hard to proceed both from a political and financial standpoint.
Market sources warn that the revelation of this plan may actually have an adverse effect and prove damaging to the banking sector, as it can be interpreted as an admission by the government that the problem of bad loans cannot be tackled in the context of the new targets the banks have submitted to the European regulatory authorities, and that more drastic solutions are necessary.
Such an element could render banks more vulnerable to profiteering and certainly does not ease investor concerns over their capital adequacy, which triggered last week’s selloff.
The plan for the creation of a guarantee scheme for bad loans is difficult for the following reasons:
- It requires the approval of the European Commission competition authorities so as to bypass the rules against state subsidies.
- The use of part of the cash buffer of 30-33 billion euros at the state’s disposal would require the approval of the European Stability Mechanism, or the eurozone member states whose finance ministers are ESM board members.
- The state guarantees may not suffice given that the country has not yet reached an investment grade credit rating, so the Greek state collateral remains more or less a dead letter.
Well-informed sources warn that it would take some time for such a plan to go into effect, meaning that banks should not become complacent and lose sight of the need to increase efforts to meet the new ambitious targets they have committed to.
Government sources, on the other hand, say that the bad loans that would benefit from state collateral so that they can be sold more easily to an investor would amount to 15 billion euros, out of a total of 88 billion euros of nonperforming exposures.