Greece: Has its time come at last?
«As the Spanish NPL ent of a secondary market, an increased use of debt on debt finance and greater legal certainty on structuring points will continue to help drive large volumes of transaction activity.»
Greece has long been expected to be the next key European NPL the major NPL institutional investors increasingly turn their focus to the country and gradually increase their investment in understanding local eworks. In 2018, we have seen the first two major secured NPL acquisitions successfully conclude (Project Amoeba and Project Jupiter), in addition to continuing unsecured and retail NPL transaction activity. The country saw eight deals undertaken with a total gross book value of €13.9bn in 2018.
While the economic outlook for Greece has improved significantly in recent years, Greek banks continue to be under pressure to progress their NPL resolution programmes.
Pursuant to targets agreed with the European Central Bank, the aim of the Greek banks is to reduce their aggregate NPL exposure to €65 billion by the end of 2019. In addition, in , the Central Bank of Greece published a proposal for a “centralised management scheme” wherein banks would transfer a “significant part” of bad loans and deferred tax claims to an SPV.
The bank could then “transform the transferred deferred tax credit into an irrevocable claim of the SPV on the Greek State with a predetermined repayment schedule.” This is designed to achieve a single-digit exposure ratio within three years.
Greece: top deals in 2018
A second plan promulgated by the Hellenic Financial Stability Fund envisages the creation of an NPL securitisation programme guaranteed by the Hellenic Republic, akin to the structure adopted in Italy.
It is understood that both of these plans are to be considered by the European Competition Commission in order to determine what, if any, state aid issues they create before they are taken further. Experience suggests that things are traditionally not fast moving in the country, so it remains to be seen whether concrete changes will indeed be effected within a sensible timeframe.
The banks have now been recapitalised three times since the 2010 debt crisis and are still weighed down by bad loans to a greater extent than their counterparts in any other EU country
Greece has thrown up some unexpected results in our survey, reflecting uncertainty over this market and its medium- and long-term prospects. By way of illustration, respondents are split almost equally as to whether they expect average IRR to increase or decrease over the next two years in respect of transactions pursued in the country.
Despite the number of licensed servicers having considerably increased in the past year and the licensing process having been simplified compared to when it was first introduced, investors still report that they find the process for obtaining a licence onerous. Indeed, our research concludes that servicers and lawyers rank Greece as having the least efficient regulatory regime for obtaining and operating under a licence out of all of the VA installment loans principal European markets.
In terms of legal structures followed in the NPL transactions that have taken place, it is encouraging to see that the 2003 Greek Securitisation Law has been successfully utilised to facilitate execution of those sales. This is a long-established statutory regime which brings the notable benefit to Greek disposal transactions of not requiring a seller to provide advance notice of a loan sale to the underlying borrower population.
With these positive developments, our view is that the Greek legal and regulatory environment appears to be embracing the new world of NPL sales with a renewed sense of commitment. These formative successful NPL sales, together with the recent insolvency and security enforcement law reforms, should in principle be conducive to maintaining a healthy level of interest in the Greek market.