The European Commission has approved Greek plans aimed at reducing the nonperforming loans of the country's banks, saying it did not violate state aid rules.
The asset protection scheme, known as Hercules, aims to bring down the stock of NPLs without distorting the market through government subsidies. Similar to Italy's GACS scheme, Hercules could reportedly lower banks' NPL stock by €30 billion.
As of the end of the first quarter of 2019, Greece's "big four" lenders — Piraeus Bank SA, Eurobank Ergasias SA, National Bank of Greece SA and Alpha Bank AE — still have over €80 billion of toxic debt on their balance sheets between them, according to S&P Global Market Intelligence data.
The program would allow banks to use state guarantees to back the securitization of NPL portfolios. The bad loans would then be moved to a special purpose vehicle that will purchase the NPL from the banks. The sale would be remunerated by notes issued by the SPV with a state guarantee for senior tranches, but state involvement will be limited, and the government would be compensated at market terms for its guarantee, the Commission 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 securitization vehicle," the Commission added. "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."
