ATHENS (Reuters) – Greece is in talks with the European Commission to extend its “Hercules” bad debt reduction program to help banks further reduce the mountain of bad credit hanging over their balance sheets, the government said on Wednesday. Deputy Minister of Finance.
The Hercules Asset Protection Scheme (HAPS) was introduced in late 2019 to help the country’s banks offload up to €30 billion in bad debts.
Similar to Italy’s GACS model, the program helped banks clean up their balance sheets by turning batches of bad loans into asset-backed securities that could be sold to investors.
Greek banks can apply for a government guarantee on the senior tranche of a non-performing loan (NPL) securitization as long as they sell the majority of the mezzanine and junior notes. The government guarantee gives the senior bonds a zero risk weighting.
In a speech at a virtual investor conference on the Greek NPLs, George Zavvos, the minister in charge of banks, said the government wanted an 18-month extension of the program from April this year to October 2022. .
The aim is to help banks further reduce non-performing loans by 32 billion euros ($38.84 billion) and bring NPL ratios down to single digits by the end of 2022, close to averages of the EU.
Despite the reduction in non-performing loans of around 59 billion euros from a peak of 106 billion in March 2016 – a legacy of a 10-year financial crisis that shrunk the country’s economy by a quarter – the The banking system’s overall NPL ratio of 36% at end-September remains well above a eurozone average of 2.9%.
The Hercule device 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.
($1 = 0.8238 euros)
Reporting by George Georgiopoulos; Editing by Kirsten Donovan