State to ease arrangement of bad loans

The government proposed on Friday an out-of-court settlement model to banks for the debts that individuals owe to them, which foresees the subsidization of payment tranches so as to protect the main residences of debtors who are unable to meet the requirements of their arrangements.

The subsidy will concern specific categories of households and will be based on income and property criteria that will be determined by a special task force formed for that purpose, according to the proposal that Prime Minister Alexis Tsipras made to the board of the Hellenic Bank Association.

The bank managers met the premier at his office to discuss how the government could assist in achieving a drastic reduction of nonperforming loans while protecting debtors’ main residences. Sources say that the model is based on the debt settlement process used in the extrajudicial mechanism for corporations. Individuals will be able to submit an application to a special platform that will be set up, similar to that created for indebted corporations, so as to have all debts to banks arranged at once.

Applicants will also have to declare their income and property status, which will lead to tailor-made settlements, some of which will possibly include debt haircuts.
Inclusion in the program and acceptance of the arrangement will practically mean that a debtor’s loans are excluded from the NPL stock. The state will then intervene if the borrower is unable to meet his requirements from the payment plan and the loans are secured on his main residence; the tranche due – or part of it – will be subsidized to the amount determined by the payment plan and the income and property criteria.

Tsipras stated that the new framework is aimed at protecting the capital adequacy of the credit system. The banks have agreed to a two-month extension (i.e. to end-February) of the protection for borrowers’ main residences offered by the so-called Katseli law, which expires on December 31.

The aim is to complete the protection framework the government has proposed within those two months, following consultations with the representatives of the country’s creditors who will arrive in late January.