Mix of French, Italian, Spanish models for tackling bad loans

Bank bailout fund HFSF is proposing a mix of “Mediterranean” methods for the streamlining of overindebted enterprises, with compulsory debt/equity swaps and the expulsion of shareholders, in order to tackle the mounting problem of nonperforming loans, which come to about 100 billion euros.

In a report on the limitations and problems in the process of reducing bad loans, the Hellenic Financial Stability Fund appears in favor of a change to the law on bankruptcies and the adoption of the French model. This provides for a bank to assume control of a company with debts to the lender even without the consent of the debtor’s shareholders. This is a recent law introduced by France’s former economy minister Emmanuel Macron and applies to companies whose shareholders do not agree to the capitalization plan, even if this is the only sustainable option for streamlining a firm.

However, in the case that a company has debts to more than one bank, the HFSF recommends the model of Italy and Spain, according to which banks have to publish details on corporate debts exceeding 50,000 or 60,000 euros. Authorities in both Mediterranean countries supply information to all credit institutions about a company’s total debts to the credit sector, which is the method the HFS is proposing for Greece via the Bank of Greece, including the debts of small enterprises.

The fund’s report describes the problems in tackling bad loans and stresses delays in courts, complex legislation, tax issues and a lack of infrastructures for facilitating property transactions. Its proposals include:

– The creation of a credit and wealth register with a full record of debtors’ properties that banks will have full access to.

– Classification of cases that have protection from creditors, promoting extrajudicial settlements.

– Fast-track procedures for the cases that will eventually end up in courts.

– An online platform to ensure transparency in the auctions process and to create a more dynamic property transaction market.

– Cuts to taxes on property transactions to defrost the market.

– Harmonization of the legislation on loan sales with the legislation for securitizations that are tax exempt.

– Greater flexibility in informing borrowers when their debts are managed by a company or when his loan is sold to a fund.

– Amendment to the legislation on streamlining small enterprises by offering incentives such as debt write-offs.

– Measures for the protection and insurance coverage of bank officials who are responsible for crucial decisions.