Plan to offer collateral for NPLs to hold off fire sales

Authorities are considering a proposal that foresees banks being offered collateral for nonperforming loans through a special investment vehicle for their immediate capital relief and the efficient tackling of the bad-loan problem. Kathimerini understands that a study to that effect has already been processed by the Hellenic Financial Stability Fund.

The collateral could be funded from part of the 10 billion euros in bailout program funds for banks that remains available, combined with private resources and capital from international organizations such as the European Investment Bank.

This vehicle, known as the Asset Protection Scheme (APS), will not only boost the banks’ capital, but also ease market and investor concerns about the state of Greek banks.

The NPLs that come under the protection of the APS will remain in the banks’ portfolios and continue to be managed by the lenders. However, as senior bank officials point out, lenders would get more time to deal with the bad loans – and flexibility in doing so – allowing them to avoid portfolio sales, which are currently being conducted at prices that amount to just 3 percent of the NPLs’ original value.