The vast number of non-performing loans (“NPLs”), i.e. loans not paid for over 90 days – exceeding at times 2.000.000 in number – has created over the past 6 years an enormousburden on Greek economy hampering even more its recovery. Each of the “memoranda” implemented during the last years explicitly provided for Greek bank recapitalizations in order to tackle capital deficits. IMF and the European Institutions had repeatedly pointed out the need for a new, flexible regime to regulate transfer of NPLs, which would not only increase the net worth of Greek banks but would also release them from all time and money consuming collection procedures.
By virtue of Law No. 4354/2015 (the “Law”), a new regime on NPLs has been introduced, providing for the transfer of NPLs from banks to the SPV provided therein, the so-called “Corporation for the Transfer of Claims from non-performing loans” (the “Corporation”). The Corporation must have an establishment in Greece (main corporate seat or branch if seated in another EU Member State). Credit institutes or securitization companies could also be involved in the market of NPLs, in case the relevant activity fallswithin the scope of their activity as per their Articles of Association.
In order to participate in the relevant NPLs market, the Corporation must have been granted a license from the Bank of Greece (the “BoG”), the regulatory authority forthe national financial system; license is granted upon successful completion of all good standing and law compliance checks carried out by the BoG. In any case, the Corporation applying for license must have drawn up a business plan on NPLs collection, which shall explicitly set out the Corporation’s main principles and methodology. Upon fulfillment of all requirements, 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 per se to the Corporation. A copy of the transfer agreement must be registered with the special directoryon 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 – in anticipation, however, of the upcoming provisions specifically regulating primary residence mortgages and SMEs loans – sets a rather flexible and low cost regime, allowing banks to dispose of anyunwanted NPLs against an instant repayment of part of their nominal value. Such regimegenerates a new market branch, the so-called “Secondary Market of NPLs”, which actually enhances the prospects forrecovery of 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.
In overall, the new NPLs legislation must be approached as aboost to the national banking system and a strong movement towards FDI attraction; fast cash flow in bankfunds is expected to lose its strict lending policy and, combined with the careful screening of loan applicants, will contribute to the re-initialization of national economy and catch the eye of foreign investors.
Dr. Evangelos Margaritis
Senior Associate Greece
Senior Associate Greece