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As Hercules bad loan plan delays, Greece loses another year

Completion of the Hercules plan, a proposal being put together by the Greek government to help banks offload nonperforming loans, has been pushed back to 2020, in a development that is also delaying other initiatives by banks to improve their balance sheets. Due to uncertainty stemming from the Hercules proposal, Greek lenders are unable to complete steps they have already announced and prepared 12 months ago, such as the Eurobank - Pimco deal.

Completion of the Hercules plan, a proposal being put together by the Greek government to help banks offload nonperforming loans, has been pushed back to 2020, in a development that is also delaying other initiatives by banks to improve their balance sheets.

Due to uncertainty stemming from the Hercules proposal, Greek lenders are unable to complete steps they have already announced and prepared 12 months ago, such as the Eurobank - Pimco deal. The management of Alpha Bank was also forced after the summer to revise plans to sharply reduce bad loans, waiting to hear about the technical details of the Hercules scheme before finalizing its strategy. On the side of Piraeus Bank, the lender is planning two securitizations, worth some two billion euros, but these deals have also been put on ice. 

Hercules is taking more time than the government estimated as the target of voting in the relative legislation has been pushed back to the end of November from the initial October target date.

According to bank sources, there are many difficult technical issues that have yet to be resolved that require time to be ironed out. Even if talks among all parties involved proceed well, there are also outstanding operational details, such as who will monitor and control the special purpose vehicle to be used in the scheme, who will assess the securitization titles to be issued and how payments will be made.

At the same time, talks have yet to be completed with the supervisor, the Single Supervisory Mechanism (SSM), on the proposal in order to make the scheme a profitable one for lenders to participate in. These are issues that should have been solved months ago by Deputy Finance Minister George Zavvos, who is overseeing the plan.

These problems are of no interest to investors who are seeing time pass by without any improvements, while the new government does not appear to offer a clear strategy plan.

This is a proposal that has been in the making since 2016. It had been put together and completed by the Hellenic Financial Stability Fund (HFSF) and was based on the successful Italian model. But the left-wing Syriza showed no real determination to tackle the issue, though in the fall of 2018, the Finance Ministry appointed JP Morgan to work on the deal as bank shares slumped and the market started to discount another round of recapitalizations.

In the run-up to this year's general elections, the plan was frozen and eventually passed onto New Democracy and Zavvos who adopted the unusual stance of cutting out leners, the Bank of Greece and the SSM from negotiations and held talks only with DG Comp. This has led to the current position where the plan has been approved by DG Comp but has problems with the regulators and poses challenges to lenders instead of opening the path to deals that would help the sector support Greece's economic recovery.

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