Herculean task at hand for Greek banks

Herculean task at hand for Greek banks

The asset protection scheme for the reduction of the bad loans in banks’ portfolios has been dubbed the “Hercules Project” by the government, according to the proposal submitted to the European Commission by Deputy Finance Minister Giorgos Zavvos last Friday.

The name points to the Herculean task banks face in order to clean up their nonperforming loan stock, and sources say that loans worth some 30 billion euros – out of a total of 75 billion – will enter the scheme.

That is where the state’s assistance will be required, as it will guarantee the senior portion of loans that the banks intend to securitize according to the plan.

The collateral will amount to 9 billion euros, according to a Bloomberg report Wednesday, which amounts to the entry into the scheme of some 30 billion euros’ worth of loans, as some 30 percent of the loans belong to the senior category that will secure collateral.

The key point is to prevent this collateral from being seen as a state subsidy, which is why Athens is seeking Brussels’ approval.

Government officials argue that the APS “will not cost Greek taxpayers a single euro” and believe that the negotiations recently conducted by Zavvos will secure a positive reaction by the Commission. They also expect the final response soon.

In anticipation of that feedback, the deputy finance minister is already preparing the bill regarding the collateralization so it can be tabled in Parliament and be voted on as soon as Brussels has given the nod.

The main idea behind the APS is to transfer banks’ bad loans into a special purpose vehicle and securitize them in three categories: senior, mezzanine and junior. The Greek state will guarantee the senior section with banks paying a certain commission for that collateral.

The senior bonds will remain in banks’ portfolios, as a market source explains, “so that banks are relieved of the risk but not of the asset, so as not to harm their profits.”

The state will offer an 18-month guarantee, according to the blueprint submitted to Brussels, but that could be extended.

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