Banks' Asset Quality
Hellenic Asset Protection Scheme (“Hercules” initiative)
The Hellenic Asset Protection Scheme (renamed to “Hercules” scheme) was an HFSF strategic initiative, implemented by the Ministry of Finance, designed to assist banks in securitizing Νon Performing Loans (NPLs) and moving them out of their balance-sheets. Under the first phase of the Scheme (Hercules I), the four systemic banks have submitted requests for utilizing the Scheme in order to securitize €31.3 billion (gross book value) of NPLs with a view to releasing their potential for the financing of households and corporations.
The immediate reduction of banks’ NPLs -at an affordable cost- coupled by the development of an active NPL market are among HFSF highest priorities. In this context, the Fund worked closely with all stakeholders involved in the task of NPL reduction, including Government Authorities, the Bank of Greece, the Single Supervisory Mechanism (SSM), Supranational Organizations, Investors, international banks and advisors, and the Greek systemic banks, in order to address the need for a systemic structural solution to address the reduction of NPLs.
Under the Scheme, an individually managed, private securitization vehicle will buy NPLs from the bank and dispose notes to investors. The State will provide a guarantee for the senior, less risky notes of the securitization vehicle. In exchange for such guarantee, the State will receive a commission at market terms. In November 2018, the HFSF sent an all-encompassing study to the Ministry of Finance for the development of the Hellenic Asset Protection Scheme. Throughout 2019, HFSF continued working closely with the banks and other stakeholders on the Hellenic Asset Protection Scheme (HAPS) initiative, also participating in the legal team responsible for the drafting of the relative Law. The Law was eventually approved by the Greek Parliament in December 2019. The successful Scheme was extended in April 2021 under the “Hercules II” programme, which is expected to run for 18 months, until October 2022. Greek banks are expected to continue to reap the benefits of “Hercules” and have unveiled new deals to be issued in the second phase of HAPS. As in the case of “Hercules I”, the Greek State will provide guarantees of €12 billion on the senior tranches of securitisations, which is the most secure part of the transaction.
HFSF continues to support the use of securitisation as a sustainable funding tool and a key mechanism to control credit risk and free up capital that can be channelled towards economic growth. The Fund participates in several securitisation fora, and acts as a permanent observer of the Prime Collateralised Securities (PCS) association, alongside the ECB, the EBA, the EIB, the EIF and the EBRD, among others. In July 2022, HFSF, in collaboration with PCS, published a technical paper on synthetic securitisation and the benefits it may provide for Greek banks as a risk and capital management tool. The paper is available here. In September 2022, HFSF co-sponsored alongside PCS a Securitisation Symposium to bring together securitisation experts, regulators, originators, arrangers, investors and servicers. The symposium provided an overview of the key features and different types of securitisation transactions on the European market, delved into SRT and on-balance sheet securitisation, while focusing as well on the key securitisation matters in Greece. Throughout the year, the Fund monitored banks’ execution of securitisation transactions under the Hercules Asset Protection Scheme that was a catalyst for all systemic banks to reach single-digit NPL ratios in 2022.
NPE management
In addition to the H-APS strategic initiative, the HFSF worked closely with the banks and the authorities in order to facilitate the management of NPLs, whereas as per the provisions of the RFA, the HFSF provided its consent for the approval of the banks’ NPL Strategies and Operational Targets submitted to the SSM.
Having developed a robust NPL data management and reporting tool to analyze and benchmark banks’ performance on the NPL reduction front, the HFSF holds regular meetings with the banks to discuss latest developments and identify as early as possible reasons for potential deviation versus approved NPL Operational Targets, recommend mitigating actions and potential constraints. The latter has been a long-lasting focus of the Fund that has developed and updated twice an “Analysis of non-regulatory constraints and impediments for the development of an “NPL market in Greece”, as well as providing its comments and proposals for the new Insolvency Law.
Open and frequent communication with the banks is of paramount importance and is also taking place through the Hellenic Banks Association, where the Fund participates as an observer in the NPL Coordination Committee and the Fund’s participation in other interbank-initiatives such as the NPL Forum, established following HFSF’s relative proposal through its work on an “NPL resolution action plan to enhance coordination among banks and accelerate the restructuring of the Large Corporate NPLs”.
The Fund’s dedicated division, aim to act as a center of excellence, research, develop and promote international best practices and provide guidelines to ensure uniformity of solutions, acceleration of process and sharing of know-how in specific focus areas of NPL management in cooperation with domestic and international associations and with the assistance of external experts (as needed).
The domestic banking sector significantly strengthened its key indicators, demonstrating that it is now in a better position than in the past to absorb the shocks from international markets. During the year 2022, the operational target for asset quality improvement was achieved and the non-performing loans (NPL) ratio was reduced to single-digit level (December 2022: 8.7% of the total loan portfolio, compared to 12.8% in December 2021), mainly through the use of the Hercules pre-programme of state guarantees. However, the NPL ratio still remains significantly higher than the corresponding European average (December 2022: 1.8%).
Programmes and actions to support vulnerable debtors and reward prudent borrowers.
The increase in base rates resulted in an increase in interest rates for mortgage loans taken out at variable rates. Given the significant financial burden on these borrowers, banks created programmes to support the financially weaker borrowers through interest rate subsidies and to reward prudent borrowers by maintaining a lower base rate for mortgage loans. In December 2022, the programme to support borrowers of credit and financial institutions with floating rate mortgages was created. The programme provides for a 50% subsidy of the increase of the monthly instalment of a floating rate mortgage loan for a period of 12 months with a reference date of 30.6.2022. In April 2022, the systemic banks, as part of their corporate social responsibility, announced reward schemes for consistent borrowers of floating rate mortgage loans. The schemes of the systemic banks have entered into force at the beginning of May 2023, have common features and provide for the automatic inclusion of all consistent borrowers with variable rate mortgages regardless of maturity and currency. The scheme provides for the benchmark interest rate in force on 31 March 2023 to be maintained at 20 basis points lower for 12 months, protecting borrowers from any further increases in base rates.
The Fund communicated its expectations to Greek systemic banks regarding the timely prevention of risks arising from the pandemic (Covid19) as well as from the recent the energy crisis and, provided systematic support in terms of the appropriateness and effectiveness of the measures taken.
In addition, the Fund actively supported the systemic initiatives of the Out of Court workout (OCW), the Bridge I, Bridge II programs with the aim of preventing the creation of new debt or/and the revival of existing delays in the repayment of existing private debt.