The Best of GRReporter
flag_bg flag_gr flag_gb

Plan for new solutions for loans "in the red"

26 August 2012 / 16:08:57  GRReporter
3840 reads

According to indications listed in the Memorandum of financial assistance, the government will undertake steps to improve the institutional framework for over-indebted households, as the new regulations will have to apply to all types of loans, hence to the company ones as well.

According to the commitments made by Greece, the authorities had as early as in the second quarter of 2012 to have explored the possible changes in the law, in order to facilitate the restructuring of non-performing loans by drawing on international experience and following the advice of the European Commission, the European Central Bank and the International Monetary Fund.

Banks have already started restructuring loans, but deflation in the economy creates the need for a new review of the existing mechanisms.

Changes

As stated in the Memorandum, all changes will be guided by strict rules, which will be consistent with the existing financial resources in order to preserve the culture of prompt payment and to avoid a collapse of strategic loans. An attempt to recover the assets will be made, but the differentiation between viable and non-viable lenders will also be facilitated. All this bears the stamp of the supervisory Troika and will serve as a basis for a discussion, which will soon take place, between the Ministry of Development, and in particular Deputy Minister Athanasios Skordas, and the Greek banks.

Consumer organizations which have already accumulated substantial and specific experience in this matter will also participate in the dialogue.

The new bill would be consistent with the new parameters resulting from the crisis, which have affected further the finance of households and businesses. But it will comply with the conditions in the financial and credit institutions which are in the process of recapitalization, in order to be able to support the economy.

Campaign slogans such as "forgiveness of all debts" are extremely difficult to happen in practice, says a leading banker, since banks are continuing in practice to experience a shortage of capital and are expecting the completion of the institutional framework, so that to complete their recapitalization.

Debt relief

So, it is clear that banks do not have opportunities for further debt relief any more, although in many cases the absence of another solution forces them to such a step, or by a judicial decision, or because the debtors no longer have any funds to pay their obligations.

Two new moments in the bill in terms of individuals are expected to be considered:

- Graded rates for contribution on each loan according to the income of the debtor. It is discussed this percentage to be 30 per cent of the income, but there are proposals for its settlement at lower levels too, depending on the economic situation of the debtor.

- Extension of the time for payment of contributions, in order the loan to be paid gradually and to have an opportunity to be transferred to heirs.

Other issues that will be discussed are related to the listed mortgages, which often exceed many times the size of the loan, based on past practices. Of course, the possibility the borrower to refer to judicial authorities is also considered, if there is no amicable agreement with the financial and credit institutions.

Although banks are seen as an additional burden for the Greek economy, says a reputable banker, it should be noted that the behaviour of banks to borrowers has fully adapted to these conditions, which costs a lot to the financial and credit institutions. Before, the borrower was the one who wanted a review. Now mostly bank employees want from defaulting borrowers to proceed with the review and they are trying to make as much loans as possible performing again.

Recapitalization

To complete the new legal regulation, the recapitalization of banks must be completed first, note leading factors from the banking sector. This is the reason why the legislative initiative has gone beyond the schedule specified in the Memorandum. At the same time, the new regulation should also show care for the accurate borrowers. According to banking sources, the regulations being performed are leading to income redistribution at the expense of those who have not taken loans or are paying their duties regularly, thereby distorting competition.

Home loans

In terms of home loans, which are the most difficult group of loans to manage, banks offer an extension for payment: in residential mortgage loans for the purchase, construction or repair of property, time to repay the loan is increased from 1 to 10 years, with a maximum term of 40 years, as often the maximum age of the borrower is up to 90 years. However, when at the time of payment of the loan the borrowers will have reached over 75, banks require them to have a younger guarantor as well.

If the borrowers have declared in advance that they are unable to pay their debts, it is possible a request for deferment of service of the loan to be considered, for no more than two years, as the term for its repayment is extended. Also, according to the case, it may be decided to pay only its interest or the capitalization of the interest during the period of suspension.

Other solutions are also applied with a specific duration such as paying only the interest on the loan, freezing the interest, or the contributions in case of unemployment for a given period of time, with a continuous monitoring of the condition of the borrower, as well as a reduction of contributions of up to 30 per cent of the existing ones.

Tags: loans economic crisis institutional framework Greek banks bad loans
SUPPORT US!
GRReporter’s content is brought to you for free 7 days a week by a team of highly professional journalists, translators, photographers, operators, software developers, designers. If you like and follow our work, consider whether you could support us financially with an amount at your choice.
Subscription
You can support us only once as well.
blog comments powered by Disqus