The state’s asset protection plan, dubbed Hercules, will render securitizations a more attractive instrument for the reduction of nonperforming exposures (NPEs) of Greek banks, Morgan Stanley says in a new report, while Germany’s Scope Ratings notes that securitization conditions in Greece are improving.
Morgan Stanley estimates that Hercules will relieve banks of bad loans amounting to 22 billion euros next year, reducing their average NPE index to 23 percent, from 36 percent this year, while the banks themselves will shrink their NPEs by another 4 billion euros in 2020.
The report projects that Alpha will achieve an NPE index of 18 percent next year, from 40 percent in 2019, while Eurobank’s is seen dropping from 16 to 10 percent, and Piraeus’ from 48 to 42 percent next year.
According to Morgan Stanley, besides Hercules, there are also macroeconomic, political and legal factors that support the reduction of Greek lenders’ NPEs.
That support is anticipated to come from the government’s commitment to reforms and fiscal streamlining, the recovery of growth, property prices that are expected to climb 7-8 percent per year in the next three years, and new bank-friendly legislation. Consequently Morgan Stanley projects a reduction of NPEs in the next quarters.
Scope Ratings says in a report that the reduction of bad loans through securitizations will constitute a key factor in the support of the weak recovery of the Greek economy, along with strengthening the funding capacity of the credit sector and investments.
“Legal reforms are in place to champion the creation of a domestic nonperforming loan secondary market and reduce the large crisis-induced stock of nonperforming exposures. This, together with a more conducive market environment, has led to better conditions for NPL securitizations, especially those backed by residential mortgages,” stated Jakob Suwalski, associate director of Scope’s public finance team and co-author of the report.