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Greek Fin Min Staikouras steps in on Hercules bad loan plan

Greece's Finance Minister Christos Staikouras is scheduled to meet on Thursday afternoon with the heads of the country's banks to discuss the Hercules bad loan plan in a bid to secure the highest participation from lenders and reduce the risk of fresh uncertainty hitting the sector. The meeting comes after a report from Business Daily showing that the technical details of the plan submitted by Greece to the European Commission have not been approved by the European Central Bank's Single Supervisory Mechanism (SSM).

Greece's Finance Minister Christos Staikouras is scheduled to meet on Thursday afternoon with the heads of the country's banks to discuss the Hercules bad loan plan in a bid to secure the highest participation from lenders and reduce the risk of fresh uncertainty hitting the sector.

The meeting comes after a report from Business Daily showing that the technical details of the plan submitted by Greece to the European Commission have not been approved by the European Central Bank's Single Supervisory Mechanism (SSM), that technical issues put forth by the regulator have gone unanswered, while those directly affected by the proposal, Greece's lenders, have been left in the dark.

With the intervention of Staikouras and a more active role from the Bank of Greece (the country's central bank), top bank officials hope that tens of outstanding technical issues on the Hercules plan will be resolved in order to make it more effective. Otherwise, there is a risk that some banks will be in a difficult position ahead of next year's stress tests and that a new period of uncertainty could hit the sector.

Speaking on the issue on Monday, Staikouras said that the implementation of the plan is being conducted with the participation of all European and Greek institutions, including the Bank of Greece. The Greek minister stressed that the strengthening of the country's banks is one of the government's top priorities.

According to sources, the Greek finance minister is keeping a close eye on the plan that has been put together and submitted to European authorities by Deputy Finance Minister George Zavvos, to ensure the possible result.

Officials closely involved with the Hercules plan have informed Business Daily that bankers are concerned about the final draft Zavvos has sent to European authorities for approval, due to the fact that it is excessively based on the Italian model. The ECB had passed the broader Italian plan but not the technical details and plan put together by the Greek state. 

In what was probably an attempt to push through the proposal quickly, Zavvos closely followed the Italian model. However, Greece is not Italy: Italy's public debt has a significantly higher investment rating than Greece's while the credit ratings of Italian lenders are also different.

Overly shaping the Greek plan on the Italian model may secure the quick approval of the European Commission but will also result in a proposal that cannot be applied in Greece due to differences between the two financial systems.

Greece's plan may foresee a reduction on bad loans of up to 30 billion euros but in effect, the amount of bad loans that will be transferred to the scheme could be far lower due to excessively high participation costs for lenders. This means that the bulk of bad loans sitting on bank balance sheets could remain there, weighing in the financial system and the Greek economy.  

Yannis Papadogiannis

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ENGLISH EDITION

Hercules bad loan plan gets nod from SSM in major boost for banks

Bank of Greece governor, Yannis Stournaras, met with the heads of the country's lenders on Monday and briefed them on the positive outcome of talks on the issue. This is seen a being a major development for the sector as it opens the path for the sale of large-sized securitizations of bad loans within the framework of the Hercules plan that will offer state guarantees on senior tranches, once conditions in the market return to normal.