Greece to offer banks $10b to tame bad debt

Bloomberg

Greece plans to provide as much as 9 billion euros ($10 billion) in state guarantees to help its banks reduce a mountain of soured debt weighing on their balance sheets, according to two people with knowledge of the matter.
The initiative, similar to a successful programme used in Italy, depends on antitrust officials in Europe ruling that it doesn’t constitute illegal state aid. A decision by the European Commission is expected over the next few weeks, the people said, asking not to be identified because the discussions are private.
Banks in Greece, Europe’s most indebted country, hold some 75 billion euros in soured debt, boosting costs for provisions and restricting their ability to generate new loans. The guarantee programme, known as an asset protection scheme, could cut that down by at least 20 billion euros, the government estimated when the plan was first floated about a year ago.
The programme will allow lenders to use government guarantees to back the securitisation of bad-loan portfolios, according to the people.
The soured debt will be transferred to a special purpose vehicle that will issue senior, mezzanine and junior bonds. The senior debt will be guaranteed by the government and will remain on the banks’ books.
The benchmark Athens bank index rose on the report and was up 2.2 percent as of 3:27 p.m., with the National Bank of Greece and Alpha Bank AE leading gains. While the index has climbed 83 percent this year, it’s still far below the levels reached before the financial crisis.
The EU Commission is in contact with Greek authorities on an asset protection scheme, a commission spokesman said without elaborating.
A Greek government official declined to comment.
Italy’s bad-debt programme, known as GACS, caused securitisations to surge, reaching a record of more than 65 billion euros last year. That figure is expected to decline in 2019 as fewer loans are classified as non-performing. Greek banks managed to trim their bad loans from 81.8 billion euros at the end of 2018.
While the Greek proposal was initiated by the previous government, Kyriakos Mitsotakis, who took over as prime minister two months ago, has made it a priority to finalise negotiations before a new European Commission assumes office in November.