Greece's Hercules Asset Protection Scheme is not a complete solution to the bad loan problem faced by the country's banks, Nondas Nicolaides, Vice President – Senior Credit Officer at Moody’s Investors Service, told Business Daily.
"The scheme itself is not a panacea for resolving the asset quality problem in the banking system, given that we estimate only up to around 36 billion euros of NPEs can be dealt with through this scheme compared to around 71 billion euros of outstanding NPEs in the system as of September 2019," he said.
The credit rating agency sees the program as being credit positive but highlights the importance of the details that have yet to be determined.
"The recognition of zero risk-weight for the senior tranches, pending regulatory approval, that banks will retain is vital for regulatory capital purposes, as it will provide important relief to their risk-weighted assets (RWAs)," he said.
In regards to challenges faced by Greek lenders participating in the scheme, Nicolaides pointed to possible losses stemming from the securitizations of bad loans that each bank may have to book and the impact this may have on their regulatory capital metrics.
"Some banks have excess regulatory capital to absorb the loss, while others have done transactions conferring additional capital that will help them counterbalance the potential impact," he stressed.
In a report issued in October, Moody's highlights that usage of the plan "will be somewhat detrimental to banks' capital levels in 2020-21."
"The success (of Hercules) will very much depend on the foreign investor demand driven by the currently stable political environment, improving economic conditions and increasing real estate prices in Greece," added the Moody's official.