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How to deal with "red" loans in Greece

The Bank of Greece suggests new measures

Brussels, 23 June 2014
The Bank of Greece takes new action
The Bank of Greece takes new action

The Bank of Greece suggests a new framework to deal with "red" loans in the country that amount to 84 bn Euros

Giannis Stournaras, the former Finance Minister of Greece, has been appointed as the new head of the Central Bank of the country a couple of weeks ago. Alongside with this change, a new framework has been made known, according to which a number of measures will be taken to deal with the increasing number of “red” loans and mortgages in arrears. The Act will be effective as from 31 December 2014, while it will updated by September 30. Large part of the Greek press criticize the plan as rather controversial and opposition friendly newspapers claim that “it will turn home owners to tenants”.

Partial waiver, collateral by the borrower, sale or rental of property and even granting the right to stay in the property under lease, are some of the illustrative arrangements. There will be three types of regulations; a) short- term (less than 5 years), b) long-term (longer than 5 years) and definite ones. The pack of measures include among others:

For the short-term regulation

  • Period of grace
  • Lower rates
  • Payment of interest rates only during the regulation period

For the long-term regulation

  • Permanent reduction of the interest rates
  • Extension of loan repayment term
  • Partial deletion of debt, so that the remaining amount can be served

For the definite regulation, which is the most controversial one

  • The borrower, who cannot meet the terms of repayment, passes over the mortgage voluntarily to the credit institution.
  • The borrower transfers ownership of the property to the credit institution by signing a leasing contract, which ensures the possibility of lease and use for a certain minimum period of time (usually five years).
  • The borrower transfers ownership of the property either to the credit institution or a third party. The agreement may be accompanied by granting the right of residence in the property under a lease (usually for a minimum period of three years).
  • An agreement is possible that allows borrowers with financial difficulties who had mortgaged his principal residence or professional roof to sell buying a new one of lower value.
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This new sort of code of ethics for late payments is expected to help the liquidity of Greek credit institutions that have been struggling to tackle the problem of non-serviceable loans. The decision by the Bank of Greece was published in the Governmental Gazette on Wednesday, 18 June (serial number 1582).

Sources: Proto Thema, To Vima, ERT Open

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