Greek banks awash in 80 billion euros ($88.18 billion) in bad loans will be able to benefit from a state plan to shed 30 billion euros ($33.07 billion) after the European Commission said it doesn’t violate bloc rules barring state aid.
Bankers close to the process told Reuters earlier they were expecting the approval for the Hercules Asset Protection Scheme to let the institutions get rid of the so-called Non-performing loans that grew when customers couldn’t pay during an economic crisis that saw Greeks smashed with big pay cuts, tax hikes, slashed pensions and worker firings.
“The European Commission has found Greek plans aimed at supporting the reduction of non-performing loans of Greek banks to be free of any state aid,” the Commission said in a statement, the news agency reported.
The banks need to get rid of the bad loans so they can restore their balance sheets and resume lending, a missing key element to pushing a slow recovery from a 9 1/2-year-long crisis that needed three international bailouts of 326 billion euros ($359.33 billion) to try to fix although it didn’t slow the country’s staggering debt.
Banks had already received 50 billion euros ($55.11 billion) from the rescue packages to keep them afloat but haven’t been able to cut down the bad loans, many given to businesses that didn’t repay and even to the now ruling New Democracy and its former coalition partner, the now-defunct PASOK Socialists who got 250 million euros ($275.56 million.)
The bank officials who approved those loans without sufficient collateral beyond state subsidies to political parties that weren’t enough to cover the amount were given immunity from prosecution and there’s been no explanation how the money was spent as both parties reported they still had financial problems.
The plan is similar to Italy’s GACS model and crafted to help lenders offload bad debt by wrapping it into asset-backed securities, the report said. Hercules will involve setting up special purpose vehicles (SPVs) that will purchase bad loans, financed by notes issued by the SPV with a government guarantee, but state involvement 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 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,” it also added.