50,000 Borrowers Face “Step Up” Loan Dilemma: The Autumn of Tough Choices for Banks and Households

Starting in September, Greek banks will launch a large-scale operation to restructure 50,000 step-up loans, inviting borrowers to switch from graduated repayment plans to standard amortizing contracts.

This move comes under pressure from the Single Supervisory Mechanism (SSM), which considers such contracts high risk and has asked systemic banks to eliminate them before repayment shocks transform performing loans into new NPEs.

What are step-up loans – and why regulators worry

Step-up loans were introduced during the 2015–2016 crisis as a lifeline for households hit by income collapse. Borrowers started with lower initial installments, gradually rising over time.

That “later” moment has now arrived. With today’s inflation, stagnant wages, and economic uncertainty, the risk of default as installments climb is significantly higher.

The new proposals: Stability with a price tag

Banks are now shaping proposals that will be optional for customers:

• Fixed interest rate of ~3% throughout the loan’s lifetime.
• Stable monthly installment, shielding borrowers from future shocks.
• However: installments will immediately rise by 25%–30% compared to today.

Advantage: Predictability and security over the long term. Drawback: A steep short-term burden for households already struggling with disposable income.

The numbers behind the risk

• Total outstanding step-up loans: €4.5–5 billion.
• Expected conversion to amortizing contracts: €3.5 billion.
• Remaining loans at risk: €1.5 billion, which could be flagged as unlikely to pay.
• Provisions expected from banks: around €300 million.

The Swiss franc puzzle

The government is finalizing a scheme to subsidize the exchange rate for borrowers with Swiss franc loans. But here lies a complication: most of these loans are also step-up contracts.

• The new regulation would increase installments even further.
• An extension of maturity is under discussion, to soften the impact in the early years.
• Any final decision will require SSM approval.

The “Hercules” factor

At the same time, today’s meeting at the Bank of Greece focuses on stress-testing the guarantees of the Hercules securitization program. Key risks include:

• Real estate assets acquired through foreclosures that cannot enter the market quickly.
• Legal uncertainty: a potential Supreme Court ruling on mortgage interest calculation could undermine senior tranches of securitizations.
• Changes in Swiss franc loan contracts impacting cash flows.

A political and social dilemma

The step-up loan issue is not just about technical banking regulation. It touches on social stability and political capital:

• Tens of thousands of households face a choice between short-term pain and long-term security.
• Banks must balance regulatory compliance with customer trust and social responsibility.

This autumn will be critical for the Greek banking sector. Banks are performing a delicate balancing act between SSM’s supervisory demands and the financial resilience of households. The big question remains: who will ultimately bear the cost of transition — the banks or the borrowers?

Source: pagenews.gr