Greek authorities want banks to clean up their loan books faster, and they have put together new schemes to help lenders offload bad debt by wrapping it into asset-backed securities. Sour loans remain the biggest challenge facing Greek banks, the legacy of a multi-year debt crisis that shrank Greece's economy by a quarter and drove unemployment close to a record high of 28 percent in 2013.
So-called non-performing exposures stood at 84.7 billion euros ($95.98 billion), or 46.7 percent of banks' loan books, in September. That is nearly half the country's projected gross domestic product this year.
"Unprecedented levels of NPEs in the banking sector are a major drag on the economy, the elephant in the room as conditions improve," Nick Karamouzis, head of Greece's bank association, told an economic conference in Berlin last month.
The urgency of the problem has led the government and the central bank to come up with more radical initiatives involving securitisations.
One plan to solve the problem is a Bank of Greece scheme to have banks transfer NPEs to a special-purpose vehicle (SPV), aiming for a single-digit NPE ratio within two to three years. Banks would transfer a portion of NPEs and deferred tax credits to an SPV that would fund the transfer with securitisations.
A second plan, the APS scheme, was put together by the finance ministry and bank rescue fund HFSF, which holds stakes in Greek banks after taking part in three recapitalisations. It involves SPVs that would issue bonds with a government guarantee for senior tranches, similar to Italy's GACS model.
The government submitted the APS plan to European Union authorities earlier this week, a senior government official told Reuters.
The APS scheme could need state guarantees of 5 billion to 7 billion euros, to be used only if needed. "Our goal is for these guarantees not to be deemed as state aid by the EU's competition arm," the official said.
About 15 billion euros of bad loans could be securitised via the APS model, according to HFSF CEO Martin Czurda. That would cut the NPE ratio close to European averages. Up to 40 billion euros could be shifted to an SPV in the Bank of Greece model.
Solutions to bad loans should proceed fast to alleviate market fears that have hammered bank shares, Bank of Greece chief Yannis Stournaras said at an economic conference last month.
"One of the two proposed platforms will go ahead, or there will be a combination of the two," Stournaras said. "The finance ministry wants to start with the APS scheme and later on include ours as well."
Although reducing NPEs has been a priority for banks in the past years, progress has been slow. The big four banks - Piraeus, National, Eurobank and Alpha - have reduced them by 21 percent since March 2016, when sour loans peaked at 107 billion euros.
But Greek banks remain the slowest in tackling the burden among the top 10 EU countries ranked by NPE ratio, according to UBS.
Fitch Ratings says the plans could help clean up asset quality faster and ease pressure on bank capital and profitability, potentially improving their credit profiles. But it remains unclear how much interest either proposal would draw, the agency says.
"Unknowns include investor appetite for Greek NPE-backed bonds, compliance with state aid rules, and the time frame of any transfers," it said.
According to Moody's, Bank of Greece's proposal to reduce banks' non-performing exposures ratio to less than 10 percent from over 40 percent within three years would help their credit.