September 18, 2019 / 4:30 PM / a month ago

Greece aims for 30 bln euro sour loan clean up via Hercules scheme

ATHENS, Sept 18 (Reuters) - Greece expects a green light from European Union authorities shortly to put in place an asset protection scheme that will help its banks offload up to 30 billion euros of sour loans, bankers close to the process told Reuters on Wednesday.

Banks have been working to reduce a pile of about 80 billion euros ($88.5 billion) in bad loans, the legacy of a financial crisis that shrank the country’s economy by a quarter. Shedding the bad loans is crucial for their ability to lend and shore up their profitability.

The country’s new conservative government is keen to speed up the process and has appointed a deputy finance minister in charge of the project, George Zavvos, viewing bank balance sheet repair as a top priority and key to economic recovery.

Dubbed the Hercules Asset Protection Scheme (HAPS), the plan is similar to Italy’s GACS model and crafted to help lenders offload bad debt by wrapping it into asset backed securities.

“It is a scheme that is expected to clean up around 30 billion euros of bad loans from bank balance sheets. It is voluntary but banks have committed to take part,” one of the bankers said.

Although reducing so-called non-performing exposures (NPEs) has been a pressing issue for banks in the past years, progress so far has been slow.

The ratio of sour credit over total loans was 45.2% at the end of the first quarter and banks aim to bring it down to below 20% by the end of 2021.

HAPS will involve setting up special purpose vehicles (SPVs) that would issue bonds with a government guarantee for senior tranches.

“The guarantee feature on the less risky senior tranche will be a contingent liability for the state and fiscally neutral,” the banker said, meaning it will have no impact on taxpayers or a cash buffer of about 32 billion euros Athens has accumulated from unused bailout funds and proceeds from recent bond issues.

Under the HAPS scheme, banks will need to sell at least slightly more than 50% of the mezzanine and junior tranches of the asset backed securities in the market, a precondition for the guarantee feature on the senior notes.

Greek authorities expect the plan to soon get the formal blessing from the European Central Bank’s supervisory arm (SSM) and the EU’s competition watchdog which will not deem it as breaching state aid rules. (Reporting by George Georgiopoulos Editing by Alexandra Hudson)

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