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Fitch Ratings: Greek Asset Protection Scheme Is Credit Positive for Banks
11 OCT 2019 08:45 AM ET
Fitch Ratings-Barcelona/London-11 October 2019: The launch of an asset protection scheme in Greece is credit positive for the country's banks, Fitch Ratings says, as it should help them to accelerate the reduction of the large stocks of legacy non-performing loans (NPLs) that weigh on their capital, profitability and ability to lend.
Under the scheme, which will allow banks to offload up to EUR30 billion of NPLs, the Greek government will provide a guarantee for the senior tranches of NPL securitisations. In return, it will receive a fee in line with market conditions for the risk it assumes. The scheme is similar to Italy's GACS model. The European Commission approved Greece's scheme yesterday after determining that it did not violate state aid rules. We expect the scheme to be fully implemented in the coming months.
Greece's new government is being more proactive with policy implementation to tackle the asset quality problems in the banking sector. The asset protection scheme has scope to cover up to 40% of the sector's EUR75 billion NPLs (end-June 2019). Greece's four domestic systemically important banks have non-performing exposure (NPE) ratios ranging between 33% and 51%, among the highest in Europe, and have ambitious targets to reduce these, largely through securitisations and portfolio sales (NPEs comprise NPLs and certain other unlikely-to-pay obligations).
Two of the systemic banks plan to reduce their NPE ratios to about 20% by end-2021 while the other two aim for mid-teen or high single-digit ratios. Use of the scheme could accelerate the planned securitisations, helping the banks to meet their targets sooner.
The impact of the scheme on banks' financial profiles will depend on the extent of participation, the cost of taking part and investor appetite for distressed Greek assets. There appears to be good investor appetite given the sector's NPL disposals this year and Greece's improving operating environment should help support demand. The cost for banks will depend on how they use the scheme. The fee they pay for the state guarantee on the senior tranches will be based on a market benchmark corresponding to the level and duration of the risk that the state takes in granting the guarantee.
While there are execution risks involved in the set-up and usage of the scheme, the precedent in Italy and the market experience gained from some NPL securitisations in Greece this year should smooth the process and support market acceptance.
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11 OCT 2019 08:45 AM ET
Fitch Ratings-Barcelona/London-11 October 2019: The launch of an asset protection scheme in Greece is credit positive for the country's banks, Fitch Ratings says, as it should help them to accelerate the reduction of the large stocks of legacy non-performing loans (NPLs) that weigh on their capital, profitability and ability to lend.
Under the scheme, which will allow banks to offload up to EUR30 billion of NPLs, the Greek government will provide a guarantee for the senior tranches of NPL securitisations. In return, it will receive a fee in line with market conditions for the risk it assumes. The scheme is similar to Italy's GACS model. The European Commission approved Greece's scheme yesterday after determining that it did not violate state aid rules. We expect the scheme to be fully implemented in the coming months.
Greece's new government is being more proactive with policy implementation to tackle the asset quality problems in the banking sector. The asset protection scheme has scope to cover up to 40% of the sector's EUR75 billion NPLs (end-June 2019). Greece's four domestic systemically important banks have non-performing exposure (NPE) ratios ranging between 33% and 51%, among the highest in Europe, and have ambitious targets to reduce these, largely through securitisations and portfolio sales (NPEs comprise NPLs and certain other unlikely-to-pay obligations).
Two of the systemic banks plan to reduce their NPE ratios to about 20% by end-2021 while the other two aim for mid-teen or high single-digit ratios. Use of the scheme could accelerate the planned securitisations, helping the banks to meet their targets sooner.
The impact of the scheme on banks' financial profiles will depend on the extent of participation, the cost of taking part and investor appetite for distressed Greek assets. There appears to be good investor appetite given the sector's NPL disposals this year and Greece's improving operating environment should help support demand. The cost for banks will depend on how they use the scheme. The fee they pay for the state guarantee on the senior tranches will be based on a market benchmark corresponding to the level and duration of the risk that the state takes in granting the guarantee.
While there are execution risks involved in the set-up and usage of the scheme, the precedent in Italy and the market experience gained from some NPL securitisations in Greece this year should smooth the process and support market acceptance.
Your opinion matters and we would greatly appreciate any constructive feedback you have on Fitch Wire commentary. Please complete the survey at this link.
