Authors: Aikaterini Laskaridou

Title: “Getting inside to the Banking financial mechanism reformed by Hellenic Asset Protection Scheme: A post pandemic review”

Abstract

The main focus of this study is to bring on the impact of the Hellenic Asset Protection Scheme (Hercules) in December 2019, an advantageous measure to improve banks’ asset quality. The scheme concerns the NPL exposures transfer to securitize these loans and sell notes to investors, with senior tranches being guaranteed by the Greek state. However, applying IFRS 9 affects any additional regulatory capital requirements, while the 2020 stress test and the introduction of the prudential backstop will act as further exacerbating factors.

Nowadays, Greek banks encounter three main challenges: (1) a high rate of NPLs that must be substantially reduced, (2) the financing post-crisis the post-pandemic period, and (3) the digital adaptation of their operating models.  Efforts to address the mentioned challenges are underway and the first optimistic results were seeable before the disruption of the pandemic crisis.

The NPLs high  stock,  built over the financial crisis has been a major topic of concern over the last decade. With the cumulative reduction of NPLs from their peak of €107.2 billion in March 2016 to €47.4 billion (or 30.2%) at the end of 2020, the efforts to reduce NPLs have been positively considered (Bank of Greece, 2021). Various reforms that have improved the framework for private debt resolution, have been outlined by Stournaras (2019), consisting of (1) the acceleration of the sale by banks of collateral in defaulted loans via electronic auctions, (2) simplification of the sale of NPLs process with the introduction of a secondary loan market, (3) an out-of-court debt restructuring framework, including also a write-down of tax arrears,  (4) the reform of the insolvency regime for households and enterprises.

Nevertheless, Greece has still the highest NPL ratio among the EU Member States, tremendously by far the European weighted average (single-digit). On the optimistic side, Greek banks appear to have the capital stability to absorb the pandemic blow and the accelerating reduction of the NPL stock.  Given unstable circumstances, the Bank of Greece has also suggested the invention of an Asset Management Company (AMC) operating as a fundamental scheme for the management of NPLs. The suggested idea involves an added strategy that will constitute the basis of a comprehensive solution and lead to the banking sector restructure while managing the NPLs'  issue  (Bank of Greece, 2021).

Key words: Asset protection scheme, NPL, pandemic impact, Greek Banking Sector, Financial Crisis, Asset quality.