Significant progress was made in a meeting held Thursday between Greece's Finance Minister Christos Staikouras and top bank officials on the Hercules plan, a proposal to help the country's lenders reduce 75 billion euros of bad loans festering on their balance sheets.
Severed communication lines on the plan were largely restored in the meeting in which Deputy Finance Minister George Zavvos also took part, along with officials from Eurobank, Alpha Bank, National Bank, Piraeus Bank, and Attica Bank. Poor cooperation between the banks and the Greek government on the scheme and its technical details was initially reported by Business Daily.
It was made clear in the meeting that Greece's lack of investment-grade rating is more than a simple technical issue for the plan and that serious problems may arise given the proposal submitted to European authorities follows closely the Italian model.
A comparison of the CDS of Greek banks, compared with those of Italian peers, highlights the differences between the two cases. Critics have also questioned the role of JP Morgan, who is advising the state on the proposal, for failing to suitably adjust the model to Greece's economic conditions.
According to sources, efforts to improve the proposal and bring it closer to the Greek reality will continue but there are concerns that there is not much time left to complete more substantive changes.
Bank officials believe that the bad loan scheme may be functional but not with the best possible terms for lenders raising doubts as to whether they will be able to make full use of the state guarantees on offer.
In other words, there will likely be differing participation rates in the Hercules scheme among banks, creating the need for an alternative option to help lenders improve their assets. This development would bring back to the table the Bank of Greece's proposal on reducing non performing loans held by the country's lenders.