The vast number of non-performing loans (NPLs) in Greece – i.e., loans not paid for over 90 days – has created an enormous burden on the Greek economy over the past six years, hampering its already shaky recovery.
Each of the “memoranda” implemented during the last few years has explicitly provided for Greek bank recapitalizations in order to tackle capital deficits. The IMF and other European institutions have repeatedly pointed out the need for a new, flexible regime to regulate the transfer of NPLs, which would not only increase the net worth of Greek banks but would also release them from time- and money-consuming collection procedures.
Law No. 4354/2015 (the “Law”) introduced a new regime on NPLs, providing for the transfer of NPLs from banks to a special purchase vehicle (SPV) called a “Corporation for the Transfer of Claims from Non-Performing Loans” (a “Corporation”). A Corporation must be established in Greece either via a main corporate seat or a branch if it is seated in another EU member state. Credit institutions or securitization companies can also be involved in the market for NPLs where the relevant activity falls within the scope of their activity as per their Articles of Association.
In order to participate in the relevant NPL market, a Corporation must have been granted a license from the Bank of Greece (the “BoG”), which is the regulatory authority for the national financial system. A license will be granted upon the successful completion of all good-standing and law-compliance checks carried out by the BoG. A prospective Corporation must have drawn up a business plan for NPL collection, which shall explicitly set out the Corporation’s main principles and methodology. Where all requirements are fulfilled, the license shall be granted within 20 days from the application.
Once the relevant license has been obtained, the (newly regulated) process for the transfer of NPLs is rather simple. A transfer agreement must be concluded between the initial creditor – usually a bank or a securitization company – and the Corporation, having as subject one or more non–performing loan contracts with the same debtor. Any liens (i.e., mortgages and encumbrances), are transferred automatically to the Corporation. A copy of the transfer agreement must be registered with the special directory on notional pledges. Following that, the Corporation shall be the legitimate claimant against the debtor and shall be entitled to file a lawsuit, settle, or otherwise manage the claim.
The new framework establishes a rather flexible and low-cost regime, allowing banks to dispose of any unwanted NPLs against an instant repayment of part of their nominal value. This regime also generates a new market branch – the so-called “Secondary Market of NPLs” – which actually enhances the prospects for recovery of the Greek economy at a low cost/risk rate. On the investing Corporations’ side, the new Law comes with a simplified, straightforward proposal to invest in a highly regulated environment of enhanced safety and investment protection.
Overall, the new NPL legislation must be seen as a boost to the national banking system and a strong movement towards FDI attraction; fast cash flow in bank funds is expected to lose its strict lending policy and, combined with the careful screening of loan applicants, will contribute to the re-initialization of the national economy and catch the eye of foreign investors.
By Panagiotis Drakopoulos, Partner, and Evangelos Margaritis and Mariliza Kyparissi, Senior Associates, Drakopoulos
This Article was originally published in Issue 3.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.