State collateral scheme for Greek banks’ bad loans

The government is considering the creation of an asset protection scheme to form part of Athens’s overall strategy toward the reduction of nonperforming exposures (NPEs), sources said on Thursday, effectively offering state guarantees for bad-loan clearance.

This follows a similar proposal by the Hellenic Financial Stability Fund (HFSF) that has also been forwarded to the country’s creditors. The creation of this scheme and the provision of state guarantees depend on the government overcoming the anticipated concerns of the European Commission’s competition authorities regarding state subsidies.

Last night Finance Ministry sources did not rule out the possibility of using part of the country’s 30-billion-euro cash buffer to cover the collateral needs, while the Bank of Greece would also have to be involved in the scheme.

Earlier on Thursday Bloomberg had reported plans by the government for the creation of special-purpose vehicles to manage NPEs. According to these plans, banks would be able to offload some of their bad loans on those vehicles so as to sanitize their financial reports, the report noted.

Regulators were spurred to action after Wednesday’s bank stock nosedive, on the back of five months of strong pressure that has increased investor fears that Greek lenders may require a fresh capital injection.

After Wednesday night’s meeting led by Prime Minister Alexis Tsipras, Finance Minister Euclid Tsakalotos called another one on Thursday, this time including the participation of stock market officials. Sources said the meeting discussed options for improving the institutional shielding of the capital market against speculation.

Furthermore, the Capital Market Commission announced it had launched a probe into transactions at the Athens Stock Exchange (ATHEX) to establish whether there were any indications of stock manipulation through short-selling during Wednesday’s trading session, which saw banks slide to a 32-month low.