The prolongation of “Hercules” is approved by the European Commission

Today, the European Commission gave its approval to the prolongation of “Hercules”, which aims at drastically reducing bad loans.

The Deputy Minister of Finance responsible for the financial system, George Zavvos, stated: ‘With “Hercules II”, the Greek government signals its determination to continue the successful reform of the banking system by reducing non-performing loans (NPLs). Banks are relieved of the stumbling block of bad loans and will be able to fulfil their proper role, i.e. financing the Greek economy, businesses and households. The reduction of NPLs is based on investors and does not burden the Greek taxpayers. After a long and difficult period, the banking system turns the page and can look forward with optimism to the days after the pandemic.

In parallel, “Hercules” contributes significantly to the modernisation of Greek banks, which should be prepared in good time to effectively transfer the substantial resources of the Recovery Fund to the productive investments needed by the real economy. This is the only way to achieve the twofold transformation that the Greek economy needs, namely of both the basis of the productive fabric and the banking system itself.
“Hercules” is a tangible demonstration of the implementation, in record time, of the frontloaded reforms announced by the Prime Minister and the government. It is the result of the hard work of the government’s financial staff, in close cooperation and with the coordination of the Minister for Finance

As the Executive Vice-President of the European Commission, in charge of competition policy, Margrethe Vestager said: "I welcome the prolongation of the Hercules scheme, which has already been very successful in providing a market conform solution to remove non-performing loans from the balance sheets of Greek banks, without granting aid or distorting competition. So that Greek banks can fully contribute to the recovery of the Greek economy”.

As the European Commission states: “Since the introduction of the scheme in October 2019, Greek banks have made significant progress in reducing the stock of their non-performing loans. In particular, Greece has estimated that, as a result of the introduction of the scheme, the non-performing loans ratio would have declined from 43% at the end of 2019 to 27% at the end of March 2021. The prolongation of the scheme for another 18 months will build on the success achieved so far, with the current applications to the scheme of securitizations totalling €31.3 billion of (gross book value) of non-performing loans”.

The approval of the prolongation of “Hercules” concerns a period of 18 months, i.e. from April 2021 to October 2022. During this period, “Hercules II” aims to further reduce NPLs of Greek banks by EUR 30-32 billion, i.e. to reach a single-digit NPL ratio for all four systemic banks, already within this year for some, and with certainty for all of them within 2022, thus converging with the European average NPL ratio by the end of the following year.

As in the case of “Hercules I”, the Greek State will provide guarantees of EUR 12 billion on the senior tranches of securitisations, which is the most secure part of the transaction.

In the first period of “Hercules” (December 2019-April 2021), non-performing loans of the four systemic banks were reduced by EUR 31,35 billion. In detail, participation in “Hercules I” was as follows:

  • Alpha Bank with securitisations amounting to EUR 10,8 billion,
  • Eurobank with securitisations amounting to EUR 7,5 billion,
  • National Bank of Greece with securitisations amounting to EUR 6,25 billion, and
  • Piraeus Bank with securitisations amounting to EUR 6,8 billion.

Following the effective functioning of the first period of “Hercules”, the prolongation of the Scheme comes at the request of the banks themselves, which have already announced their plans to further reduce their non-performing loans to the investment community, mainly via new securitisations to be transferred using “Hercules II”.
The same acceptance for the arrival of “Hercules II” is expressed by international investors, who have demonstrated their confidence in the Scheme even in the context of the unprecedented COVID-19 crisis.

The prolongation of “Hercules” also constitutes a commitment of the Greek government to the Eurogroup which took place November 30 2020. The prospect of “Hercules II” was welcomed by the EU institutions, like the European Commission in its 9th Enhanced Surveillance Report published in February 2021.

The “Hercules” plan constitutes a systemic solution for the radical solution to the problem of non-performing loans, the volume of which deprived the real economy of liquidity.

It is a market-based solution because it draws funds from investors and does not burden the Greek taxpayers and the State budget.
It constitutes an attractive placement for investors as it offers bonds with positive yields at a time of negative interest rates.
Thanks to “Hercules” and its prolongation, banks will be able to reinforce their balance sheets and focus entirely on their proper role, which is the financing of the real economy. The strengthening of Greek banks via their alleviation from the burden of NPLs is rendering them investable again, as also shown by the positive assessment of their prospects by international credit rating agencies, and constitutes a herald for the growth of the Greek economy and the acquisition of an investment grade rating for the country.