By George Georgiopoulos
ATHENS (Reuters) – Greece is working on an asset protection scheme to help its banks offload soured loans, and shared the details with EU competition authorities and banking supervisors, bankers and government officials said on Thursday.
The scheme would involve setting up special purpose vehicles (SPVs) where billions of euros of bad loans would be transferred from banks’ balance sheets to help speed up the clean-up process.
“There is such a plan that has been prepared by the HFSF bank rescue fund some time ago,” one senior banker told Reuters on Thursday, declining to be named.
“The plan has been shown to the government, European authorities and SSM banking supervision,” the banker said.
A government official who declined to be named said the state was looking at the possibility of an asset protection scheme, not a bad bank. “We are considering the asset protection scheme as part of a wider strategy for bad loans,” the official said.
While the government was mulling the possibility, a second, senior government official said Athens was “not looking into such solutions soon”, adding that fundamentals did not justify a market selloff on Wednesday that saw bank shares tumble 8 percent, led by a hefty drop in shares of Piraeus Bank <BOPr.AT>.
Bad loans are the biggest challenge facing the Greek banking sector.
At the end of June they had fallen by 4.1 percent from the first quarter to 88.6 billion euros ($102 billion) or 47.6 percent of banks’ overall loan book. They had totalled just 14.5 billion euros or 5.5 percent of loans when the global financial crisis began in 2008.
Approval of the type of asset protection plan that is under discussion would help banks shrink their mountain of non-performing exposures faster, but there are concerns that EU competition authorities might reject it as a form of state aid.
The HFSF (Hellenic Financial Stability Fund), which holds stakes in Greek banks after taking part in three recapitalisations, would not confirm whether such a scheme was ready to go into operation if it got EU clearance.
“All this talk about an asset protection scheme is ideas… There is no final, concrete plan,” an HFSF official told Reuters.
The Greek bank association has not seen details of the scheme, which media reports suggested could involve state guarantees on bonds issued by the SPVs and sold to distressed debt funds.
“I am not aware of any discussion going on these days between the Greek government and (EU) institutions on solutions that would involve state guarantees,” said a European Union official.
Banks have been under regulatory pressure to tackle the bad debt problem, which restricts their ability to expand credit and help the economy’s recovery.
Banks have agreed with ECB regulators to take steps to shrink bad loans to 64.6 billion euro by the end of 2019, meaning the NPE ratio would fall to 35.2 percent.
(Writing by George Georgiopoulos; Additional reporting by Lefteris Papadimas; editing by John Stonestreet)