Out-of-court settlements are increasing

Of Leonida Stergiou

With about 1,500 new applications and at an increasing rate, the out-of-court mechanism of the new bankruptcy is progressing, where 52,000 cases have been collected seeking settlement, total debts of 18 billion (14 billion to banks and 4 billion to the State), according to the latest available data (May) submitted by the Ministry of Finance to the IMF for its report. At the final stage of final submission, they exceed 5,000, corresponding to a debt of almost 2 billion euros. Bank executives and loan management executives report that all settlement cases involve a debt reduction of an average of 45%.

2nd Opportunity

Mobility was also observed in the bankruptcy and 2nd Opportunity applications of the new bankrupt, without, however, the data being considered satisfactory or showing the dynamics of the out-of-court mechanism, which also requires further acceleration. Bankruptcy applications have reportedly reached 1,200, of which almost 1,000 are in the process of being lifted. Nearly 300 cases are in court with total debts of about 300m euros, while 10 consolidation decisions have been issued.

The next steps

The Ministry of Finance and the Bank of Greece are exerting pressure to speed up the procedures that will lead to effective solutions. In the Ministry of Finance the emphasis is given to the close monitoring, updating and upgrading of automation through digitization. The Bank of Greece is pushing for more efficient management of the pledge, so that refinancing and generous arrangements can be made only in sustainable cases, otherwise bankruptcy.

Both the Ministry of Finance and the BoG, although they see improvement, do not consider that the system has reached satisfactory levels, when, for example, red loans through securitizations exceed 100 billion, while in the new bankruptcy they have reached 14 billion (debts to banks) or when half-regulated loans again show a delay of more than 90 days (almost 8 billion of the 15 billion that banks have regulated in 2021). In addition, the BoG states that the reduction in red loans from banks’ balance sheets came from securitizations and sales, not from loan recovery and consolidation, with significant capital costs and profitability. Despite their reduction in banks’ balance sheets, the problem of red loans remains as it is not written off by the banking system, while the stock left in the banks is still many times the European average.

BoGs and the ECB report that private debt as a percentage of GDP in Greece is below the EU average, but the cost of servicing households is the third highest in Europe. This reinforces the risks of declining disposable income due to inflation and lower growth.

Intermediate support program

The platform for the intermediate program for the protection of the first home of vulnerable households is ready, which is expected to start as soon as it receives the green light from DGCom, which is considered a matter of days. The program provides a state subsidy for the mortgage installment of vulnerable debtors in the amount of 70 to 210 euros per month, depending on the composition of the household. The main benefit for vulnerable debtors is the avoidance of creditors’ measures (eg foreclosures, auctions and evictions).

The interim program was created to fill the gap until the operation of the Real Estate Acquisition and Rental Agency, for which the international tender has started but is not expected to operate until mid-2023 at the earliest. The Institution will be obliged to acquire the property-first residence of a vulnerable borrower and to rent it to him for 12 years.

Vulnerable debtors

Until then, vulnerable borrowers can make use of the intermediate program, which first requires an application for certification of vulnerability through the platform of the Special Secretariat for Private Debt Management. The platform has reportedly received more than 3,000 applications, but only 60 have been identified as vulnerable. About 30% of applications are stuck in the consensus stage to lift banking and tax secrecy.

The criteria

Eligible debtors for the interim first home protection program are those who meet the following income and property and other criteria:

a) The total income should not exceed 7,000 euros for a single person household, increased by 3,500 euros for each member of the household and up to the amount of 21,000 euros per year, regardless of the composition of the household.

b) The total taxable value of the real estate must not exceed the amount of 120,000 for a single person household, increased by 15,000 euros for each additional member and up to the amount of 180,000 euros.

In addition, the property limit applies to deposits, bonds, shares, etc. which applies to the “Housing Allowance”.

The platform

The criteria are checked and cross-checked when issuing a certificate of vulnerability, which is necessary for participation in the program and is issued by a special electronic platform of the Special Secretariat for Private Debt Management. The online platform has a designer so that there is no need for manual collection of supporting documents when submitting the application, significantly reducing bureaucracy. In addition, the electronic platform will carry out automated checks and crossings, in order to prevent and exclude strategic defaulters.

After 15 months

At the end of this program, after 15 months, vulnerable borrowers who will not be able to serve a long-term and sustainable settlement, should contact the special Property Acquisition and Re-Leasing Agency for debt settlement and the provision of a second chance. This Institution will acquire the first residence of the specific vulnerable debtors and will then re-lease it to them for 12 years. The State will provide a monthly housing allowance, in order to support their obligation to pay rent. At the end of the 12-year period, the debtors will have the exclusive first privilege to repurchase the house, as long as they have recovered financially.