Greece reaches deal with lenders opening way for management of NPL loans

The Greek government agreed on Friday evening with the representatives of the institutions on a new batch of prior actions which will unlock a sub-tranche of the country’s loan. 

The relevant draft bill is expected to be submitted to parliament on Saturday, so that it can be voted on Tuesday evening. After it is voted, the Euroworking Group (EWG) will approve the disbursement of the remaining 1-billion-euro tranche. 

The agreement includes provisions on the non-performing loans of businesses with a turnover above 5 million euros, as well as the framework for the operation of the new privatization fund which will be divided in sub-divisions depending on the category of state assets for sale, as well as the new payroll for the state sector. 

Compromise on the NPLs

Finance Minister Euclid Tsakalotos told journalists that the talks at the Hilton Hotel had been concluded successfully following a compromise on the sale of nonperforming loans (NPLs), which was the last remaining issue to be settled during discussions this week.

The compromise on NPLs was based around the government agreeing that the bad loans of large companies and the unpaid mortgages for properties that are not main residences could be sold to foreign funds. The institutions, meanwhile, agreed that the NPLs of small and medium-sized enterprises, as well as mortgages for primary homes, would not be included in the portfolios banks can sell to distressed debt funds, at least until February.

Based on the bill expected to be tabled in Greek Parliament on Saturday, the government allows the establishment and operation of distress funds in Greece and the sale of all business loans, not only loans over 1mln euros owned by big companies which do not pay, as the Greek government claimed at the beginning of the negotiation.

Two phases of implementation

The minister said the deal on NPLs will be implemented in two phases: During the first phase, which will last until February 15, 2016, mortgage loans for the main residence, loans of small and medium-sized businesses and consumer loans will be excluded from those managed by private companies. After this phase the exclusion will be discussed to reach a new framework.

It was agreed that Greece and the lenders would discuss what to do with the remaining NPLs in February.

The decision means that from January 1 Greek banks will be able to sell some 56 billion euros’ worth of bad loans. The unpaid debt of major businesses amounts to around 40 billion euros, while overdue mortgages that are not for primary homes total around 16 billion euros.

Government sources said the new payroll doesn’t include new pay cuts but provides incentives for increasing effectiveness in the public sector. 

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