Management and transfer of Non-Performing Loans NPLs portfolios

The levels of Non-Performing Loans NPLs portfolios NPLs in Greece have increased significantly, due to the long-standing crisis, thus negatively affecting the credit supply channel and are causing a worsening of the banking sector financial soundness indicators. Following the latest recapitalization of Greek banks, “cleaning” the banking sector balance sheet became an imperative for new lending activity at lower interest rates and for supporting economy to achieve sustainable growth rates. The initially implemented strategy of internal management of NPLs by banks themselves, creating special internal units and internal “bad-banks”, reached its limits. Therefore, a new strategy for NPLs has now been employed by the legislator and the regulator: external management and transfer of NPL portfolios to special purpose entities. This new strategy is supposed to resolve the NPLs problem in a sustainable manner, to ensure that the banking sector is fully capable to revitalize lending activity to economically viable companies. Besides, the formation and implementation of a national NPL resolution strategy is a pillar of the Third Memorandum.

Following subsequent extensions, by virtue of the recent amendment, the 15th of May 2016 is supposed to be the date of the liberalization of the sale of non-performing loans (NPLs). Up until now, servicing by licensed non-bank servicers is permitted for all categories of NPLs, whereas only large corporate NPLs and non-primary residence mortgages can be sold to licensed entities, the other types of loans and credit being exempted, by a special legal provision, until May 15th.  However, by now, a long regulatory “way” has been paved. More specifically, the Bank of Greece (BoG) has issued so far:

The Executive Committee Act (ECA) 42/2014 on the supervisory framework for non-performing exposures (NPEs), thus introducing a harmonized framework and accelerating efforts of banks regarding efficient NPE management. The framework includes provisions on governance structure, portfolio segmentation, forbearance measures, borrower assessment, loan modification effectiveness, monitoring and reporting.

  • The ECA 47/2015, establishing a comprehensive prudential reporting framework for NPEs in Greece, going beyond the requirements set by EBA, as regards: portfolio segmentation, collateral analysis, legal workout activities, flows of NPEs, business loans by sector, performance of forbearance and closure solutions.
  • The Code of Conduct on NPL management by virtue of  Decision 116/25.8.2014 issued by the BoG Credit and Insurance Committee, as in force, in the context of Law 4224/2013.
  • The ECA 54/2015 on the methodology for determining the maximum repayment capacity of borrowers and the forced sale value of a residential property in the context of the liquidation test envisaged by Law 4336/2015 regarding the protection of primary residence.

Following those Acts, Law 4354/2015 marked the turn in the policy for NPLs. Law 4354/2015 provides the framework for non-bank servicers and the sale of NPLs.  The BoG has issued ECA 82/2016 regarding the licensing and regulatory regime on non-bank servicers and companies acquiring NPLs, a level-2 regulatory act delegated by Law 4354/2015. These companies will be supervised by the BoG and abide by the Code of Conduct on NPL management (already mentioned above).

It is worth-mentioning that the Code of Conduct issued by the BoG, already enumerated the sale of the loan as a type of “Resolution and closure solution” (“outright sale/disposal/discounted pay-off”, Section III, Annex 2 of the Code of Conduct). This was actually an “agreement for final settlement” defined  as the agreement between an institution and a borrower for the final settlement of his debt upon terms which may result in the transfer of ownership of guarantees or other assets of the borrower following the latter’s consent.  From the Code of Conduct we have now moved on to the new framework, established by Law 4354/2015, under which the transfer of NPL receivables is concluded without the borrower’s consent. A notification of the transfer is, however, necessary.


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