Bank of Greece Sounds Alarm on Hercules Guarantees – €19 Billion Gap at Stake

The €19 billion in state guarantees under Greece’s Hercules Asset Protection Scheme (HAPS) have come under scrutiny during a high-level meeting at the Bank of Greece, with top officials from the government, banks, and loan servicers in attendance.

Hercules Under Pressure

The Hercules scheme, launched in two phases (Hercules I and II), was designed to reduce Greece’s non-performing loans (NPLs) from crisis-era highs of over 45%. While NPL ratios have since fallen sharply to 8.6% by end-2023, significant challenges remain:

• Properties repossessed through foreclosures are often sold at deep discounts, eroding recovery values.
• Delays in restructuring and pending court rulings (e.g., the Katseli loans case) are adding uncertainty.
• Mass restructurings, such as those linked to Swiss franc mortgages, could further strain the framework.

The risk: a potential shortfall in state guarantees that could translate into fiscal costs for the Greek government and undermine market confidence.

stournaras

Step-Up Loans: 50,000 Borrowers Called In

In parallel, around 50,000 borrowers with step-up loan agreements will be required to visit their banks from September to amend contracts in line with investor requirements. Failure to proceed smoothly could risk fresh arrears and market backlash.

Regulatory and Policy Challenges

Stakeholders agree the situation is complex, with performance lagging well behind securitization business plans. Key proposals include:

• adjusting the legal framework to accelerate liquidation processes,
• strengthening supervision by the Bank of Greece,
• safeguarding public finances from guarantee-related risks.

The government faces a delicate balancing act: protecting taxpayers while avoiding renewed social tensions over foreclosures and loan restructurings.

Participants at the Meeting

Those present included:

• the CEOs of Greece’s four systemic banks and Credia Bank,
• the heads of the three largest loan servicers,
• senior officials from the Bank of Greece,
• the Special Secretary for Private Debt,
• the Director General of the Public Debt Management Agency (PDMA),
• and three ministers: Kostis Hatzidakis (Deputy PM), Kyriakos Pierrakakis (Minister of Finance), and Giorgos Floridis (Minister of Justice).

The meeting underscored the systemic importance of Hercules: decisions in the coming weeks will determine not only the scheme’s future, but also the resilience of Greece’s banking sector.

Bottom Line

Greece’s challenge is twofold:

1. to prevent state guarantees from turning into a fiscal time-bomb, and
2. to reassure investors that the banking clean-up remains credible and sustainable.

The coming months will prove critical as Athens tries to walk a fine line between market discipline and social pressures.

Source: pagenews.gr