Remarks by the Deputy Minister of Finance Mr. George Zavvos, on the reforms of the Greek banking system and the extension of the Hellenic Asset Protection Scheme “Hercules”

On Friday, March 12, the Deputy Minister of Finance responsible for the financial system, Mr. George Zavvos, submitted the official request of the Greek Government for the extension of the “Hercules” Scheme - which aims to drastically reduce the amount of non-performing loans burdening the systemic-bank’s balance sheets - to the European Commission Directorate- General for Competition.

Commenting on the importance of the extension of the scheme, Mr. Zavvos said: "The government, acting according to a specific plan and in record time, after the success of the Hercules Scheme during the first year of its operation, is now seeking its immediate extension, so that the Greek banks can reduce non-performing loan ratios to single-digit percentages in the coming months. With Hercules II, the banking system is turning the page and can look forward with optimism to the day after the pandemic. Greek banks should be well prepared for their critical involvement with the significant resources of the Recovery and Resilience Fund that should be effectively channeled towards the real economy. Thus, the banks, freed from the weight of non-performing loans, will be able to effectively perform their role, which is nothing else than the financing of the Greek economy, businesses and households, contributing thus to the dual transformation of the country’s productive base and the banking system.”

The day before, while addressing the Parliamentary Assembly during the debate on the bill reforming the Hellenic Financial Stability Fund (HFSF), Mr. G. Zavvos highlighted the main aspects of the reform of the banking system.

“The government's strategy for the banking system is based on three interconnected, reformist pillars”, said the Deputy Minister in Parliament, presenting their crucial importance during the discussion on the bill on the participation of the HFSF in future Share Capital Increases of Greek banks. The three pillars, concern:
“First, the full and successful implementation of the "Hercules" scheme aiming at a drastic reduction of non-performing loans. We have hitherto reduced non-performing loans, via the successful participation of all four systemic banks, by bad-loan portfolios amounting to 32 billion euros, and this is occurring just in the first year of operation of the scheme. This was secured mainly with the participation of international investors, without this representing any burden for the Greek taxpayer.

Second, the extension of the "Hercules" scheme, i.e. "Hercules II", which marks a qualitatively and functionally different phase for the banking system. It is the systemic banks themselves which ask for and embrace "Hercules II", as well as our European partners, as stated in the 9th Enhanced Surveillance Report of the European Commission published in February, and international investors. This is a crucial fact, because already within this year, but certainly within 2022, all systemic banks will have achieved single-digit percentages of non-performing loan ratios. This is a significant achievement, because in this way the banks dispense of the unbearable burden of their problem loans, strengthen their capital base and are able, with freed-up resources, to provide liquidity which can be directed to the real economy, to small and medium enterprises, to enterprises, to citizens, to households. Thus, the Greek banking system will have strong capital buffers and is becoming more competitive," said Mr. Zavvos.

Third, the introduction of the bill reforming the Hellenic Financial Stability Fund (HFSF). "We are adapting the HFSF to a new era for the country’s banking system. We are reforming the HFSF as a central instrument, in order to strengthen the financing capacity of the Greek credit institutions in the capital structure of which the Fund participates, in order to overcome the weaknesses of the past and enable them develop their business plans with confidence.

Our strategy is to do this by attracting investors to Greek banks and by injecting fresh capital. An important step in this direction will be the eventual, gradual disengagement of the State from the capital structure of the banking sector. That is why we are clearly signaling the terms of our policy, terms that show confidence in the prospects of the Greek economy and of the banking system", said Mr. Zavvos.

As he added, “the government is reforming the banking system at a critical juncture, because we urgently need a robust banking system, flexible and able to effectively channel the substantial resources that will flow from the Recovery Fund into the real economy. Especially now, at a time when we discern signs of the end of the pandemic and the machines of the world economy are reheating for the day after. This is exactly our big wager.”

Today, the country is facing the biggest challenge since joining the EEC, a challenge of key transformation of its productive base, because we need different optimal economic scales, as well as a reform of the banking system”, he stressed.

As Mr. Zavvos pointed out, after forty years, the European rules of the game change again and we are given again, -probably for the last time- the opportunity to close the gap, i.e. the gap between North and South, and to approach the European average. "It's the crucial rendez-vous of the decade. Our performance will be measurable. The transformation of our economy is a necessary condition, so that within the next five years most of the young  people who have left this country looking for jobs and opportunities abroad will have returned home. We must and can reverse the brain drain."

The Reform of the Hellenic Financial Stability Fund

Commenting on the HFSF bill, Mr. Zavvos said that the new law will allow HFSF to act in a flexible manner and to efficiently develop its divestment policy. He clarified that the capital increases of the banks in which the HFSF will be able to participate are not some type of recapitalizations, i.e. capital replenishment due to insufficient supervisory capital for resolution purposes, as has happened in the past, but the possibility for banks to resort to Share Capital Increases by accessing capital markets under normal market conditions.

Mr. Zavvos added that the bill strengthens the corporate governance of the HFSF, rendering the General Council a key body of the Fund with the presumption of competence, while the Executive Committee remains the body that manages and implements the decisions of the General Council.

Replying to a question as to what the next steps of the HFSF reforms are, Mr. Zavvos confirmed that the government intends to bring a number of amendments to the same law in a second stage, which will deal with the rationalization, according to the EU relevant standards, of the provisions regarding the qualifications of the members of the Board of Directors of the banks. In the next phase, the government will also look at the role that the Hellenic Financial Stability Fund should play from now on. "In this context, there will definitely be some parameters that will be taken into account, such as securing the resources of the Fund that have been placed in the banks, ensuring its independence, as well as requiring it to complete its exit strategy from the banks. All this should be conducted in accordance with the rule of law, the Greek Constitution and EU Law" concluded Mr. Zavvos.

Status of Hercules Program

  • To date, all four systemic banks have joined "Hercules" with a total gross securitization value of € 31.3 billion, with no burden to the Greek taxpayer.
  • This indisputable success of "Hercules", even under the most adverse conditions of the COVID-19 pandemic, was recognized internationally and by the recent 9th Enhanced Surveillance Report of the European Commission which welcomed its extension. The extension was officially requested by the Hellenic Banks Association and there was the relevant commitment of the Minister of Finance in the Eurogroup last November.
  • The so-called "Hercules II" program aims to expand the "Hercules" program by 18 months (April 2021 - October 2022), and to reduce the remaining non-performing loans by 32 billion Euros. In this way, as early as this year - and certainly in 2022 - all four systemic banks will have achieved single-digit percentages of non-performing loan ratios, thus relieving the banks from the barrier preventing them from providing liquidity to the real economy.
  • Through the "Hercules II" program, the guarantee of the Greek state of the order of 12 billion is provided on the senior bonds of the loan securitizations of the credit institutions.
  •  Eurobank already announced on 10.03.2021 its intention to include a new securitization of € 3.3 billion in "Hercules II", which will lead it to a single-digit percentage of non-performing loan ratio by the end of 2021.
  • The Greek government is waiting the response of the European Commission to its official request for extension in the first ten days of April; it will then bring immediately the implementing law to the Parliament.