NPL loans against new measures - What BN had proposed as a solution... but would require €6-7 billion in new capital

Red-loan funds and NPE management companies faced the new Pierrakakis interventions from the Minister of Finance with skepticism. Pierrakakis essentially drafted a new framework that is more protective for borrowers. The bill provides that within 3 months, NPE management companies will respond to settlement requests, and the process will be completed within six months. Furthermore, NPE management companies or servicers face a fine of €5 million, up from €500,000 previously.

Red-loan funds consider the measures pre-electoral and strict, as it is overlooked that: Out of the €80 billion in problematic loans: €18 billion have some form of servicing €30 billion are uncollectible €15 billion may re-default €5 billion have returned to banks as healthy €12 billion are other

40% of borrowers in out-of-court mechanism default again

Furthermore, NPE management companies state that it should be taken into account that even within the Out-of-Court Debt Settlement Mechanism, 40% ends up defaulting again. Borrowers enter the scheme and subsequently, after a few months, fail to meet their obligations.

The solution proposed by BankingNews

A solution was found to address the €80 billion red loans or NPEs once and for all, so that citizens do not live under the fear of foreclosures and red-loan funds do not roam Greece provocatively and undisturbed. Events in Spain show that foreclosures provoke massive social reactions of megaton proportions in society. However, this solution will require the Greek State to bring €6 to 7 billion to the table, which obviously demands immense political courage from the next government.

A bit of history and what is the solution?

During the national economic catastrophe period of 2010 to 2018—namely within 8 years—Greek banks suffered unimaginable losses due to the economic crash and required recapitalization three times with state and private funds. The causes of the losses and negative equity were the 74% bond haircut under PSI+, where banks lost €40 billion out of €55 billion in bonds, and the surge in NPEs or red loans, which peaked at €104 billion before eventually decreasing to €80 billion. Against all these, Greek banks received €38 billion in capital from the state, which, combined with funding gap coverage for good and bad banks, totaled €54 billion in capital and liquidity. To address the PSI+ loss, the Greek State executed the first 2012 recapitalization through the Financial Stability Fund.

The NPE or red-loan loss was addressed in two ways:

1. Through new recapitalizations, meaning share capital increases.

2. Through the Hercules program, where red loans are transferred to funds, special purpose vehicles (SPVs) are created, and through triangular structures, each NPE management company—such as doValue, Cepal, and Intrum—maintains relationships with Greek banks, excluding National Bank of Greece, which did not set up a similar vehicle and simply sold problematic loans in the form of securitizations.

To enable Greek banks to find buyers, they requested state assistance. The State created Hercules: €80 billion was transferred off company balance sheets through securitizations, and senior bonds alongside medium and low-security mezzanine and junior bonds were issued. For senior bonds, the state issued state guarantees initially amounting to €18 billion, which are progressively decreasing.

Where does the problem start?

While banks cleared their balance sheets from 64% NPEs down to 2.5% problematic loans relative to total loans, the problem remains unsolved within society. Out of the €80 billion in problematic loans: €18 billion have some form of servicing €30 billion are uncollectible €15 billion may re-default €5 billion have returned to banks as healthy €12 billion are other

Why 1.8 million Greek men and women were excluded

When Hercules was created under Zavvos at the Ministry of Finance, while banks were clearly and indisputably saved through Hercules, a mistake was made that we are paying for today as a dead end. When doValue, Intrum, and Cepal or other red-loan funds appeared and purchased a loan of €100,000 for €10,000, the borrower should have been given the opportunity to submit an offer as well. If the citizen-borrower or the indebted business did not show up, then the loans should have ended up with the red-loan funds.

Talk about moral hazard is nonsense: when you sell €100,000 for €10,000, you accept the fair value, and nearly 1.8 million Greek men and women—natural and legal entities—should naturally have had the right to buy and settle their debts at those prices. The reason 1.8 million Greeks were excluded from the initial phase of restructuring the €80 billion in red loans was that banks and funds saw a huge opportunity to make immense money at the expense of 1.8 million Greeks, acquire homes for cheap through mock auctions, and generally exploit the window of opportunity with laws tailored specifically in favor of funds. The single goal was for 1.8 million Greeks to pay; even assuming that out of 1.8 million, 300,000 or 500,000 are fraudsters, the remaining 1.3 million are honest Greeks who were simply ruined and cannot pay.

What is the solution for the €80 billion red loans requiring €6-7 billion and major political courage

To resolve the immense social issue called €80 billion red loans:

1. The citizen must participate 100%; a solution without the debtor does not exist—in short, a solution manageable by the debtor is required.

2. Because capital issues, loss management, or discount impairments on Hercules bonds will arise, the Greek State must contribute €6 to 7 billion in some form.

3. Political bravery must be exhibited by the new government following the May 2027 elections, when this issue will reopen.

4. Red-loan funds must know they will suffer losses or revenue reductions relative to what they had projected.

Under a model where the state contributes €6 to 7 billion in capital, a citizen could buy a red loan and repay it immediately with a haircut of around 60%. Meaning, if €10,000 is owed on a credit card, paying €4,000 upfront clears the debt entirely. Simultaneously, those listed in Teiresias due to red loans should receive a full discharge letter upon payment, and the informal period of remaining in Teiresias should be drastically reduced—e.g., to 6 months—after which the citizen returns to the White Teiresias list of consistent borrowers. How the funds will be provided is a separate matter; logically, it could involve non-actual cash but additional guarantees from the Greek state, increasing senior bonds and reducing unsecured mezzanine and junior bonds.

Conclusion

Following the elections, the major issue of 100% red loans will be opened by the new government to bring health back to 1.8 million Greek men and women. It is 100% certain that a new solution for red loans is on the way.

www.bankingnews.gr