EC has approved the prolongation of an existing Greek scheme aiming to support the reduction of nonperforming loans, or NPLs, of Greek banks on the basis that it remains free of any State aid. The existing asset protection scheme (known as “Hercules”), was approved by EC in October 2019, for an initial duration of 18 months. Greece had notified EC about its plan to prolong the scheme for another 18 months, until October 2022.
“Hercules” is designed to assist banks in securitizing and moving nonperforming loans off their balance sheets. Under the scheme, an individually managed private securitization vehicle will buy nonperforming loans from the bank and sell notes to investors. The State will provide a public guarantee for the senior, less risky notes of the securitization vehicle. In exchange, the State will receive remuneration at market terms. The objective is to attract a wide range of investors and to support banks in their ongoing efforts to reduce the amount of nonperforming loans on their balance sheets. Since the introduction of the scheme in October 2019, Greek banks have made significant progress in reducing the stock of their nonperforming loans. EC found that, under the prolonged scheme, the Greek State will continue to be remunerated in line with market conditions for the risk it will assume by granting a guarantee on the senior tranche of securitized nonperforming loans. If a member state intervenes as a private investor would do and is remunerated for the risk assumed in a way a private investor would accept, such interventions do not constitute State aid. EC, therefore, concluded that the prolonged Greek measure does not involve State aid within the meaning of the EU rules.
Keywords: Europe, Greece, Banking, NPLs, Securitization, State Aid Rules, Loan Guarantee, Credit Risk, Basel, EC
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