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What is pushing any extension of ‘Hercules’ and what are the difficulties

By Leonidas Stergiou

In October, the 18-month extension of the Herakles red loan securitization scheme (Herakles 2) expires and there are already considerations for a new time extension. The reason is the three securitizations of bad loans amounting to 2.2 billion euros of Attica Bank and the still high stock of non-performing loans in the banks, despite the single-digit percentages achieved by the four systemic ones.

Officially, neither side has opened the discussion, however, thoughts are circulating in the market about a possible extension of Hercules. Attica Bank is waiting for the ratings of the securitizations from DBRS, probably in the second half of August, in order to have time to include them in the Heracles scheme by the end of October and to calculate the additional losses in view of the capital and operational plan and the increase share capital that follows. For the Heracles procedures, the time until October, especially if there is another delay, may not be enough.

For its part, the Ministry of Finance keeps its cards closed and, according to information, does not appear to be in a hurry to make a decision, which, at the same time, must take several factors into account. There are two main ones:

First, he has reservations about whether to continue to reduce NPLs from banks that have already fallen to single digits only through securitization rather than more effective management of private debt – on and off balance sheets. Something that can be seen from the high percentage of red loans that remain unregulated (about 60%) and from the fact that about 1 in 3 loans that are regulated become non-performing again in 12 months.

The Minister of Finance, Mr. Christos Staikouras, at this point finds allies in the Bank of Greece and the ECB, which warn for more efficient management of the pledge, sustainable refinancing and use of all available tools, including the new bankruptcy. “Securitizations have largely succeeded in relieving banks and improving their assets. However, the transfer of non-performing loans (NPLs) off their balance sheets does not signal their simultaneous deletion from the banking system. NPLs continue to exist and their effective management is a necessary condition for the definitive solution of the NPL problem and the definitive consolidation of private debt”, it is stated in the latest Financial Stability Report of the Bank of Greece. Something that was also pointed out by the head of the ECB for Greece, Mr. Martin Bysterbos, in an interview with Capital.gr, at the beginning of the week. At the same time, the reduction of bad loans only through securitization burdens the profitability and capital of the banks, according to the Central Bank.

The Minister of Finance, Mr. Christos Staikouras, was particularly sharp on the issue of sustainable arrangements during the presentation of the course of the extrajudicial mechanism at the end of July. Then the Special Secretary of Private Debt, Mrs. Marialena Athanassopoulou, presented the high percentage of rejections in the arrangements, which reaches 57%. At that point, the finance minister, Mr. Chr. Staikouras called on banks and servicers to assume their responsibilities. “Banks and loan managers must join the state, fully aware of the new challenges that are emerging for all of us. We estimate that in the next period of time, they will show due responsibility,” he said.

Secondly, the decision of Eurostat and the Commission is pending regarding how and how much the public debt can be burdened by the guarantees given in the securitization schemes of red loans, not only in Greece with Heracles, but also in other European countries, with corresponding shapes.

The timing and Eurostat’s intentions for the decision on this issue on a pan-European basis are crucial factors for the Ministry of Finance to proceed with discussions on a possible new extension – even for a few months – of Herakles.

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Source: Capital

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