ATHENS (Reuters) – Greece is in talks with the European Commission to expand its “Hercules” bad debt reduction program to help banks further reduce the mountain of bad loans hanging over their balance sheets, said Wednesday. Deputy Minister of Finance.
The Hercules Asset Protection System (HAPS) was put in place at the end of 2019 to help the country’s banks offload up to € 30 billion of bad debts.
Similar to Italy’s GACS model, the program has helped banks clean up their balance sheets by turning bundles of bad loans into asset-backed securities that can be sold to investors.
Greek banks can apply for a government guarantee on the senior tranche of a non-performing loan securitization (NPL) as long as they sell the majority of the mezzanine and junior notes. The government guarantee gives senior bonds a zero risk weight.
In a speech at a virtual investor conference on Greek NPLs, George Zavvos, the minister responsible for banks, said the government is seeking an 18-month extension of the program from April this year to October 2022.
The goal is to help banks reduce NPLs further by 32 billion euros ($ 38.84 billion) and bring NPL ratios to single digits by the end of 2022, close to averages. of the EU.
Despite the reduction in non-performing loans by around 59 billion euros from a peak of 106 billion in March 2016 – the legacy of a 10-year financial crisis that shrank the country’s economy by a quarter – the overall NPL ratio of the banking system of 36% at the end of September remains well above an average for the euro zone of 2.9%.
The Hercules scheme will help banks improve their profitability and finance the real economy. Securitizations offer attractive notes to investors in an era of negative interest rates, Zavvos said.
(Reporting by George Georgiopoulos; Editing by Kirsten Donovan)
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