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EU clears Greek Hercules plan to cut bad debts by $ 33 billion

BRUSSELS / ATHENS (Reuters) – Plans to cut bad loans from Greek banks by up to 30 billion euros ($ 33 ​​billion) were approved on Thursday by the European Union, which said they did not violate not state aid rules.

Bankers told Reuters last month they were waiting for the green light from the European Commission for the program, which will help Greek banks get rid of non-performing loans hanging over them.

The Hercules Asset Protection Scheme aims to reduce the amount of bad debts without distorting the market through government subsidies.

The European Commission said in a statement that it had found that “Greek plans to support the reduction of non-performing loans from Greek banks are exempt from any state aid”.

Banks in Greece have struggled to shrink an estimated € 75 billion stack of bad loans, a legacy of a financial crisis that has shrunk the country’s economy by a quarter. Getting rid of bad debt is crucial for their ability to lend and consolidate profits.

“Reducing bad debts is a top priority for the government, a systemic solution targeting a significant share of around € 30 billion or 40% of total bad debts on bank balance sheets,” said a senior ministry official. Finances at the press in Athens.

The largest banks in Greece are the National Bank NBGr.AT, Alpha Bank ACBr.AT, Eurobank EURBr.AT and the Bank of Piraeus BOPr.AT.


The plan is similar to the Italian GACS model to help lenders get rid of bad debts by wrapping them in asset-backed securities.

The official said the Hercules program is “innovative” because for the first time a substandard eurozone country will offer state guarantees on senior tranches of non-performing securitized loans.

Hercules will involve setting up reception structures (SPV) which will buy out bad debts.

The sale would be financed by notes issued by the SPV with a government guarantee for the senior tranches, but the state’s participation will be limited, the Commission said.

“The risk for the State will be limited since the State guarantee only applies to the senior tranche of the bonds sold by the securitization vehicle”, he added.

He said the state guarantee on the senior tranche would only become effective if more than half of the unsecured and risky tranches were successfully sold to private market players.

Hercules is a voluntary program and will last for 18 months, although its duration may be extended. The legislation will be submitted to the Greek parliament by the end of the month, the official said.

Hercules will operate on a “first come, first served” basis.

“Assuming it is in effect today, the annual fee banks would pay the state for its senior tranche guarantee would be less than 1.8%, lower than the Italian model,” the official said.

Reporting by Robin Emmott in Brussels and George Georgiopoulos in Athens; edited by Raissa Kasolowsky, Christian Schmollinger and Alexander Smith