Greek plan to reduce bad loans by €30 billion approved by EU

The European Commission (EC) has approved a proposal to reduce the size of non-performing loans held by Greek banks by €30 billion.

‘I welcome that with the Greek government we have a found a market conform solution to tackle the stock of non-performing loans weighing on the balance sheets of Greek banks,’ EU Commissioner for Competition Margrethe Vestager said.

Project Hercules helping Greek banks cut bad debt

The EU launched the Hercules Asset Protection Scheme which will reduce the size of bad loans weighing down Greek banks balance sheets without distorting the market through state aid.

‘If a Member State intervenes as a private investor would do and is remunerated for the risk assumed in a way a private investor would accept, such interventions do not constitute State aid,’ the EC said in a statement.

‘The Commission therefore concluded that the Greek measure does not involve State aid within the meaning of the EU rules.’

Greek lenders follow in Italy’s footsteps to offload bad debt

Lenders in Greece are eager to reduce a bad debt pile of around €80 billion so they can begin lending and return to profitability.

Greek banks will follow Italy’s GACS model, which will see lenders’ bad debt packaged up into asset backed securities via special purpose vehicles (SPVs).

The purchase will be financed by notes issued by the SPVs with a government guarantee for senior tranches, though state involvement will remain limited, the EC said.

‘The risk for the state will be limited since the state guarantee only applies to the senior tranche of the notes sold by the securitisation vehicle,’ the EC said.

‘The state guarantee on the senior tranche will only become effective if more than half of the non-guaranteed and risk-bearing riskier tranches have been successfully sold to private market participants,’ it added.