(Finance) – The European Commission has approved, pursuant to EU state aid rules, the extension of a Greek plan (known as “Hercules”) aimed at facilitate the reduction of non-performing loans of Greek bankson the basis that it remains free from any state aid.
The scheme aims to assist banks in securitization and in shifting bad loans off their balance sheets. Under the plan, private special purpose vehicles buy bad loans from banks and sell securities to investors. The State provides a public guarantee for senior securities, which are less risky than securitization vehicles. In exchange, the State receives remuneration at market conditions. The remaining securities are distributed to existing shareholders or sold to private investors.
The Commission has initially approved Hercules in October 2019for a duration of 18 months, which was then extended until October 2022. After its expiry, the scheme was reintroduced in November 2023. The extension approved today extends the duration of the scheme to 30 June 2025. The overall balance of the regime will also be increased from 2 to 3 billion euros.
The plan, highlights the EU Commission, has “contributed significantly to reduce non-performing loans in the Greek banking system” from around 30% at the end of 2020 to less than 5% in June 2024. The extension will also allow Greece’s less significant banks (LSIs) to benefit from the positive economic outlook in Greece and to improve the quality of their operations to more manageable levels, in line with their larger counterparts.
(Photo: Dim Hou on Unsplash)