One last chance for bad debtors

Banks offer borrowers generous haircuts on their dues, reaching up to 95 pct, before they are sold to funds

Banks are giving bad debtors one last chance to settle their dues – with write-offs that could reach as high as 95 percent – ahead of the sale of more nonperforming loan portfolios to foreign funds.

According to estimates, more than 500,000 borrowers have received letters from their banks in the last few months, or are about to, asking them to pay off a small part of their original debt, benefiting from a generous haircut of between 70 and 95 percent.

This course of action has been adopted by Eurobank, which was the first to sell a portfolio of unsecured loans (named Eclipse), worth 2.8 billion euros, followed by Alpha Bank, which sold a similar package (Venus) worth 3.7 billion euros. Piraeus Bank is currently selling the Arctos portfolio, with 1.5 billion euros’ worth of loans, while National Bank is unloading its Earth package, worth 5.2 billion euros. Within the next month Eurobank is expected to concede a second portfolio of loans.

In total, Greece’s four systemic banks are expected to transfer bad loans adding up to over 10 billion euros to foreign funds, which will almost cover the target set by the European Central Bank’s Single Supervisory Mechanism (SSM) for the sale of NPLs worth 11.5 billion.

The banks’ appeal to debtors with unserviced arrears gives them a last chance to respond and take the beneficial terms the banks are offering them before their dues – including the interest amassed – are transferred to funds. The banks’ proposals do not concern the settlement of the loan through a gradual pay-off process, but the total payment of part of the dues in a lump sum within one or two months.

While funds will also try to negotiate settlement terms with borrowers, the write-offs that banks are currently offering are exceptionally favorable, while those that the funds will extend to borrowers, via special debt management companies they will commission, will definitely be less generous.