Bigger haircuts were decided by the loan management companies

By Leonidas Stergiou

The servicer and the Bank of Greece agreed to exhaust all the possibilities that loan managers have for more regulations, but also to search for new tools and improvements of the institutional framework that can lead to permanent loan consolidation.

The available data from the Bank of Greece and the European Banking Authority (EBA) show that the flexibility of management companies has increased long-term and sustainable arrangements. However, there are categories of loans that can be regulated more, such as business loans, consumer loans and those that remain on banks’ balance sheets.

Already, management companies are cutting back on 65-70% of loans, mainly in mortgages and business, with a default rate of around 25%. In the total of loans, ie those that are also in the banks, this percentage has improved, but it ranges around 17-18%. Also, the percentage of non-performing loans that are in a protection regime is quite high, but also those that show arrears of more than one year. Also, the data show that half of the serviced loans are regulated.

The management companies reiterated their intention to exhaust all possibilities for even longer-term arrangements, giving zero tolerance to unsustainable cases and strategic defaulters. In this context, existing tools will be utilized, but also new ones with a parallel improvement of the institutional framework, in order for servicers to gain greater flexibility and sources of liquidity. Particularly:

First, an increase in the haircut rate, a reduction in interest rates and a longer duration. This solution leads to the creation of liquidity of the debtor, due to a reduction in the cost of servicing the loan, resulting in a viable arrangement. This model is mainly applied to business loans.

Second, loans that are on the banks’ balance sheets, but are managed by servicers, do not always have the same flexibility, due to supervision. The proposal provides for the refinancing of the loan, ie the payment of the debt to the bank, so that the management company can take over the loan. Here, the problem is related to the cost of money and liquidity of the management companies, as they do not receive deposits. However, with the creation of self-financing, the sale of red loans on the secondary market and the repayment of “cured” loans to banks, time and maturity are given to the portfolios and funds of management companies to enter the refinancing. refinancing will have to get permission from the BoG, which is expected to be seen in about two years, although a management company working with a systemic company said during the meeting with the BoG that it is considering ways to reduce funding costs.

Third, management companies have called for a review of the framework for “cured” loans, and today, a loan that is regulated and up-to-date for one or two years is considered “forborne”. This loan, in the first two years, if it is returned to the bank, then it is classified in the high risk category (stage 2), ie higher provisions are required. “(Borrower because the loan was settled), the bank because he is taking out a mortgage loan and the management company selling it at a higher price than it bought it. But here, the institutional framework is not just for three years.” prohibits the sale of the loan to the same bank from which it was transferred to the management company. At this point, servicers initially ask the supervisor to limit the 2-3 year period to a maximum of 1 to 2 (for forborne or completely “green”). However, there is also the view that restriction of non-return to the bank from which it was sold.

Fourth, longer haircuts and reduction of mortgage and consumer loan costs. It is noted that in the mortgages not as big haircuts are made as in the consumer and the cards.

Fifth, greater use of the out-of-court mechanism and the second opportunity with bankruptcy, in unsustainable cases. Issues of acceleration of procedures in mortgage offices, courts, etc. are examined here. In addition, the new bankrupt can not operate without the consent of the debtor. Therefore, there should be a special legal procedure by the creditors.

Sixth, the creation of partnerships and partnerships between companies, whose loans are managed. That is, the servicers themselves will identify potential partners and with appropriate restructuring (eg sale of a property) and partnerships will result in consolidation of businesses.

The red loans in numbers

-40% reduction in red loans since the beginning of the pandemic.
-55.6% of non-performing loans are not regulated. The rates for mortgage, consumer and business loans amount to 56.7%, 65.7% and 53%, respectively.
-1 out of 3 non-performing loans is considered uncertain collection (9.9 billion euros)
-1 in 3 non-performing loans show a delay of more than 90 days (9.1 billion euros)
-6.1 billion euros are more than a year behind. Most are business.
-9 billion euro loans are still in some protection or facility regime (Bridge, step up banks, etc.).
-15% of loans under protection or with a state guarantee show a delay of more than 90 days.
-131 billion euros in loans are under the management of servicer.
-83% of servicer loans are in arrears.