A long-standing demand by Greece’s creditors for a complete liberalization of the framework managing and reselling non-performing loans (NPLs) on secondary markets was finally achieved on Thursday with the passing of a relevant amendment in Parliament by a slim majority of MPs.
The leftist Greek government, after months of negotiations and often very public opposition to such a prospect, eventually acquiesced to the demand by institutional lenders with legislation allowing “bad loans” with state guarantees to be eligible for sale to distress funds. A draft amendment tabled on Thursday morning and ratified hours later achieved the sector's complete deregulation. Just weeks earlier, the government had excluded the specific category of NPLs from resale, with an indefinite protection in place.
One particularly eyebrow-raising prospect is the fact that state-guaranteed loans allocated to borrowers that had incurred damages from natural disasters (quakes, floods, wildfires) will now be eligible for resale.
Additionally, a much greater share of NPLs linked with mortgages of primary residences will be eligible for resale and transfer to distress funds.
Speaking from Parliament on Thursday, Finance Minister Euclid Tsakalotos said NPLs that eventually activate the Greek state guarantee will not be added to the annual budget, reducing risks of not meeting annual primary budget surpluses until 2018 – and thus avoiding the dreaded automatic cuts in state spending that the Tsipras government has also passed through Parliament this month.
Based on figures compiled by the General Accounting Office, up until March 2016 the total sum of loans with state guarantees reached 13.7 billion euros -- loans taken by various entities, from utilities, state organizations to local governments.
