The Greek state’s Hercules asset protection mechanism, launched in December 2019, is entering its final leg, with new securitizations of bad loans amounting to 4.5 billion euros by October.
So far the scheme has provided guarantees for loans totaling €49.5 billion that Greece’s four systemic banks have securitized. The curtain is to go down on Hercules with the inclusion of the Frontier II portfolio, amounting to €1 billion, submitted this week by National Bank.
This month Piraeus Bank is expected to submit a request for the inclusion of its Sunrise III portfolio, amounting to €800 million, while a fifth lender, Attica Bank, is launching the securitization of four portfolios totaling €2.7 billion.
In total, the securitizations for which Athens has provided state guarantee are expected to come close to €55 billion.
The Hercules instrument has been a catalyst, as it has helped banks relieve themselves of their bad loans at a low cost based on the pricing of Greek risk premiums, despite the fact the country has yet to secure investment grade.
The price of credit default swaps (CDS), which form the basis of calculation for the guarantee that banks pay to the state in order to receive the government guarantee, is today close to 170 basis points, while a year ago it was close to 70 bps.
Despite the rise in costs, the Hercules mechanism is a window of opportunity for the full consolidation of bank balance sheets and the achievement of a single-digit nonperforming loan ratio by end-2022.
The size of the resolution that has been implemented to date is reflected in the figures, based on which the adjustment foresees a ratio of nonperforming exposures (NPEs) until the end of 2022: at 7% from 45% in 2019 for Alpha; at 6% from 31% in 2019 for National; at 5.8% from 33.5% in 2019 for Eurobank; and at 9% from 49% in 2019 for Piraeus.
In absolute terms, based on first-quarter data, NPLs have been reduced: to €4.9 billion for Alpha, €2.1 billion for National, €2.7 billion for Eurobank and €4.7 billion for Piraeus.