The big clearing of loans

By Leonidas Stergiou

A long wait of more than 10 years, finally, seems to have come out, after several legislative interventions, with the most important, perhaps, the most recent one of the Ministry of Justice to improve the distribution of cases in the courts. This is the well-known “Katselis law”, to which more than 50,000 cases of over-indebted borrowers had appealed, with the aim of regulating, cutting and protecting the first home.

The ineffectiveness of the law, however, seems to have been a refuge even in cases where no protection was needed, but they remained unharmed for more than 10 years, waiting for the court date that until recently for most had not even been set.

Since the last legislative intervention, the number of cases that have received a hearing date has increased from 13,000 last year at the end of the year to more than 30,000 today. According to the data monitored by the Ministry of Finance, the average flow of return date is around 4,000 cases per month. Thus, almost all the cases of N. Katselis have now been ratified and 70% have already been tried. At this rate, all cases will be due by the end of the year. Most validated cases will be tried within the year.

There are two more interesting facts that emerge from the course of cases in the Magistrates’ Courts:

First, as the process unfolded, some 5,000 cases were withdrawn or canceled.

Second, almost one in two cases heard is negative. That is, regulation and protection are not awarded, according to decisions for about 6,500 cases of the last two months by the Magistrates’ Courts, where the burden has fallen mainly on those of Athens, Thessaloniki, Acharnes, Corinth, Piraeus and Nicaea.

Third, the rejected applications do not meet the criteria of the vulnerable borrower (income below 7,000 euros increased by 3,500 for each household member with a ceiling of 21,000 euros and real estate 120,000 euros increased by 15,000 euros for each member with a ceiling of 180,000 euros). Most have assets of up to 180,000 euros, but almost a third have incomes below 7,000 euros, while the majority have incomes twice the maximum to be considered vulnerable (by law).

Really vulnerable

The electronic platform for the certification of vulnerable debtors of the Ministry of Finance has received about 3,500 applications, but so far only 150 people have been certified. Almost 1 in 4 pending applications is stuck at the stage of lifting banking and tax secrecy. This certification is necessary as from the beginning of June the intermediate program of protection of the first residence of vulnerable households starts, who will be entitled to a housing allowance for 15 months and until the start of the Real Estate Acquisition and Leasing Agency.

According to information, the incomes declared on the platform so far, in fact, are within the limits of the law for vulnerable debtors with the average family income not exceeding 9,000 euros and the average family property 120-140,000 euros. It is estimated that the majority of the 3,500 applications will be approved once the data cross-checks are finalized. Moreover, the rejection rate today is around 1% -2%.

Extrajudicial mechanism

The out-of-court mechanism of the new bankruptcy is progressing with approximately 1,500 new applications and at an increasing pace, where 52,000 cases have been collected seeking settlement, with total debts of 18 billion (14 billion to banks and 4 billion to the State). 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 300 million 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 processes that will lead to effective solutions. In the Ministry of Finance, the emphasis is on 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 from banks’ balance sheets, the problem of red loans remains as it is not deleted from the banking system, while the remaining reserves in banks are still many times the European average.

The BoG 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.