Banks have to adjust strategy to Hercules plan

Banks have to adjust strategy to Hercules plan

Greece’s four systemic banks have no option but to participate in the government’s plan for the reduction of bad loans, named “Hercules,” approved last week by the European Commission.

The high level of nonperforming exposures (NPEs), adding up to 79 billion euros, and demands by the European Central Bank’s Single Supervisory Mechanism for their drastic reduction from today’s ratio of 39 percent to below 10 percent in 2022, make the participation of all four main lenders in this huge project more or less obligatory.

However, one of the basic terms for entering the project is inclusion in the senior notes that the special purpose vehicle (SPV) created will issue, concerning NPEs with a high chance of recovery. These loans will need to have a specific minimum credit rating of BB-, and the only bank that has received such a rating to date is Eurobank, in the context of the securitization of a 2 billion-euro portfolio named “Pillar.”

The managements of Eurobank, Alpha, National and Piraeus will have to carry out the necessary exercises in order to determine the precise amount and type of bad loans they will include in the portfolio of the SPV, which will undertake loans of 30 billion euros. These exercises may well lead to the redrawing of banks’ strategy on securitizations and planned bad-loan sales.

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