Banks will issue call to firms to seek extrajudicial debt settlement

Banks are about to issue a call to some 1,000 businesses with nonperforming loans from two or more credit institutions to enter the out-of-court debt settlement mechanism. The requests are expected to be made gradually over the course of May to entrepreneurs selected by Greece’s four systemic banks with debts ranging between 50,000 and 2 million euros.

With this initiative, banks hope to restart the process of extrajudicial settlements, which has been tangled up in red tape. So far, the number of applications submitted for the process comes to just 804, while no more than 30 have been successfully processed and ended up in a settlement.

The extrajudicial settlement process is proving an ordeal for hundreds of businesses that meet all of the criteria required to enter the mechanism, as they find themselves becoming lost in the various sections of the online platform, having to collect documents and data before even starting the negotiation process – which is also proving particularly arduous.

Out of the 29,608 enterprises that have logged on to the electronic platform – even if it was only for the purpose of obtaining information – only 5,232 have qualified as eligible under the law’s requirements and just 804 have completed the necessary steps for filing an application.

The gap between eligible businesses and actual applicants is indicative of a serious red-tape problem in the mechanism. Tellingly, the number of documents required from applicants comes to 27, hampering the progress of applications. A key factor in the delay is the process of cross-checking data on guarantors who are relieved of their liability only when they are certified to have no assets owned.

The shortage of data on guarantors is one of the main reasons why applications are rejected, even when a business fulfills the criteria. However, the key reason typically is the indebted firm’s inability to respond to any kind of debt settlement, meaning that it cannot commit to covering the agreed installments.

Banks have come under fire over their perceived failure to provide sustainable solutions to companies with multiple creditors. This initiative of, therefore, is also meant to dispel skepticism regarding their intentions and to prove that they support the process. They also want to show that the onus for delays lies with the mechanism rather than with them.