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Report: Greece plotting €9B aid to curb banks' NPL stock

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Report: Greece plotting €9B aid to curb banks' NPL stock

Greece intends to form an asset protection scheme of up to €9 billion to help lenders in the country cut their stock of nonperforming loans, Bloomberg News reported, citing two people with knowledge of the matter.

Similar to Italy's GACS scheme, the envisaged guarantee program, called Project Hercules, could lower banks' NPL stock by €30 billion, the sources said. 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 issue senior, mezzanine and junior bonds, with the senior notes to be backed by the government.

As of March-end, Greece's "big four" lenders — Piraeus Bank SA, Eurobank Ergasias SA, National Bank of Greece SA and Alpha Bank AE — still have more than €80 billion of toxic debt on their balance sheets between them, according to S&P Global Market Intelligence data.

Project Hercules would depend on a decision by European anti-trust officials who will decide whether or not it is legal or illegal, according to the Sept. 18 report. The European Commission is in dialogue with Greece regarding such a program, a spokesman for the governing body told Bloomberg, with a decision reportedly expected over the next few weeks.

If approved by the EU, banks would have at least 18 months to use the guarantee although it remains unclear how long it would take them to use it, Bloomberg noted. Lenders without a securitization plan ready could take six months to a year before Project Hercules transactions begin. The amount of bad loans on which the guarantee would apply also needs to be clarified.