Chr. Staikouras: Creditors now have the success of the new bankruptcy

LAST UPDATE: 15.09

By Leonidas Stergiou

The management of private debt is directly linked to the available income, according to the Minister of Finance, Mr. Christos Staikouras, who recalled that there have been total support measures of 50 billion euros and will continue to exist, in a targeted manner, to households and businesses, preventing the swelling of non-serviceable private debt. With regard to the interim program to protect the first home of vulnerable households until the Agency for the Acquisition and Re-leasing of Properties begins, with the parallel payment of a housing allowance, the Special Secretary for Private Debt Management, Mrs. Marialena Athanassopoulou, stated that the platform is already ready, but they are expected some technical approvals from DGCom in order to start in the coming weeks.

Disposable income-taxes-deposits

Referring to the support of disposable income, Mr. Staikouras cited as an example the positive course of tax revenues, without observing a decrease in deposits and problems in servicing loans, according to bank data. Characteristically, the minister stated that 500 million euros have already been paid out of the 1.7 billion euros in personal income taxes, while 188 million euros have been paid to legal entities out of the total amount of 1.3 billion euros. Of the total amount of ENFIA (2.3 billion), 1.1 billion euros have already been paid. Of the refundable advances (2.9 billion), 241 million euros have been paid, with 30% of debtors paying once. And all this, as the minister added, while there are even other installments for the payment of taxes, while there is no outflow of deposits.

Referring to the new bankruptcy and extrajudicial debt settlement mechanism, which was activated a year ago, loans of more than 20 billion euros are in advanced stages of the mechanism, of which more than 3 billion euros have been definitively submitted, corresponding to about 6,500 final applications of the debtors.
In recent weeks, the rate of completion of applications and their final submission has been increasing.
More than 200 applications are completed per week, with an average total of over €200 million per week owed.
To date, 425 applications have been successful, including 288 from banks and loan servicers and 137 from the State.
In these arrangements, a debt write-off of up to 33% has been carried out, while the average duration of the arrangements is up to 253 months.
However, despite the efforts, there are 1,200 completed debt settlement applications pending with the financial institutions, which correspond to over 1 billion euros of debt, and which we expect to be completed soon.

Censure

However, both the minister and the Special Secretary of Private Debt, Mrs. Marilena Athanasopoulou, reported that financial institutions approve a relatively small volume of regulation requests, in a significantly uneven manner among them.

Approval rates

Arrangement approval rates range between 18% and 79%, with Pancreatia Bank and Intrum holding the highest. An average approval rate of 46%, which worries us, given that the algorithm – and therefore the settings it automatically produces – was the result of an agreement between the state and creditors, building on the best international standards.

At the same time, debtors also reject a large percentage of debt settlement proposals, while they also show a delay in the processes of completing their applications.

Therefore, despite the real progress that has been made in the last period of time, there is significant room for improvement, mainly on the part of the financial institutions.

“Banks and loan servicers must join forces with the state, fully aware of the new challenges emerging for all of us.
We believe that in the next period of time, they will show due responsibility.
We believe that the full implementation of the law could bring a sustainable solution to over 3,000 borrowers in the next 2 to 3 months, i.e. settle debts of over 1.5 billion euros. This will be decided – exclusively – by the creditors”, said the minister.

The data

Presenting the data in detail, the Special Secretary for Private Debt Management, Mrs. Marilena Athanasopoulou, stated that based on the data until yesterday (19/07), we have 55,142 applications in extrajudicial proceedings, of which around 11,000 are at a very early stage, 37,726 applications have extraction of data, while 6,521 applications have been definitively submitted. This means that over 24 billion euros of loans are in the final stages of the mechanism, of which over 3 billion euros have been definitively submitted.

Looking a bit at the demographics of borrowers who seek a solution through out-of-court settlement, we see that the vast majority are natural persons for debts to financial institutions. In particular, 77% of the debts that are in extrajudicial proceedings concern financial institutions and 75% of the applicants are natural persons. Here I should emphasize that natural persons also include freelancers.

In recent weeks, the rate of completion of applications and their final submission has been increasing. More than 200 applications are completed per week, with an average total of over 200 million euros per week.

Until yesterday, 425 arrangements involving loans of 48 million euros were made. The proposed solutions are arrangements that include cancellation of debts but also a long repayment period. In the multilateral arrangements, the average debt cancellation amounts to 33% for financial institutions and 23% for the State – while the average repayment period exceeds 220 months. At a first glance, the results of the algorithm seem to offer sustainable solutions with the cancellation of part of the debts, but also a long repayment period. The settings given are automated based on published algorithms. This means that by building on the borrowers’ incomes and personal property, an arrangement is automatically proposed in terms of total debts – that is, we may have a reduction in liabilities (“haircut”) – but also in terms of repayment time (up to 240 installments).

Regarding the concerns, Mrs. Athanasopoulou noted that “as the Minister also mentioned, in relation to the size of the problem and judging from the result, it is clear that we must intensify our efforts. It is important to emphasize that the final The outcome of the out-of-court settlement is judged by the creditors.

The problems

The approval rates of financial institutions remain low (slide 8). Of the 2,745 applications they have evaluated to date, they have approved 1,274. In other words, of the 914 million euros of debts in which the creditors were asked to approve an arrangement, only 304 million euros passed with a positive vote. This gives an approval rate of 46% – with a large variation from creditor to creditor “which is thought-provoking, given that the algorithm – and therefore the solutions and arrangements it automatically produces – was the result of hard work by the Ministry and the creditors and therefore one would expect all algorithm settings to be approved”, noted Mrs. Athanasopoulou.

Solutions

Given the understanding of the importance of the venture and the clear support of the out-of-court mechanism from the creditors, “we have already set up a working group with the creditors so that we can capture the reasons for rejection and find ways to resolve the issues. The target is by the end of October the working group has submitted its opinions on the immediate resolution of the problems”, he added. He also noted that “we are also observing a tendency of rejection by the borrowers”. To date there are around 699 arrangements that have been rejected by borrowers and concern loans of around 123 million euros. “For us it is very important to understand the reasons for this and the Secretariat is starting after the summer a coordinated effort to record the reasons for rejection by the borrowers, but also to strengthen their communication and support – I will refer to these actions immediately after “.

An improvement is expected immediately

“We expect immediately, in the next few days within the week, to have at least another 300-400 arrangements, that is around 60-70 million loans. These are the applications that have been completed and are in the final stretch for borrowers to receive installments or that have already received and we are waiting for them to pay the first installment.

Within the next two months, anticipating the immediate implementation of the law by creditors, we expect a satisfactory number of arrangements, i.e. over 3,000 arrangements, amounting to €1.5 billion. This will be done if the evaluation of the applications that are already in the hands of the creditors, is done in the times and implementation of the law.

The swift and efficient implementation of the law is a primary objective of the Secretariat. For this reason, at EGDICH “we have set up working groups in collaboration with other agencies, which work intensively for the best possible quality of data and analysis. In the same context, that of monitoring, our goal is to minimize the rejection of the proposed regulations by the borrowers. A number of improvement proposals are expected by the end of October”.

The information and support of borrowers must be strengthened. The challenges are strong, there is intense and widespread uncertainty in the market, which is intensified by the energy and geopolitical crisis we have been experiencing lately and of course the rise in interest rates which will further squeeze the disposable income of borrowers. In light of this, therefore, the need to fully implement and publicize the existence of this tool (Extrajudicial Mechanism) as a “net” of protection becomes imperative.

“In this light, we are moving to create a more effective support and information framework for borrowers during the summer, building on the new technological possibilities. We will start a pilot at the end of September, with the aim of being universally ready for the operation of e-KEYD by the end of time.”

Mrs. Athanasopoulou warned that “the solution to the problem is necessary for everyone – we don’t have much room for delays and I am sure that all the involved parties are joining in this effort of the Ministry. I am sure that in view of the effective and immediate resolution of this of a key economic issue, and in the face of the upcoming challenges, all of us together – and the creditors – are stepping up efforts for the full implementation of the institutional framework”.

See the Extrajudicial Progress Report on the right, in the Related Files column