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The recent news that the Greek parliament has approved the Greek government guarantee programme Hercules marks an important milestone in the evolution of the European non-performing loan (NPL) securitisation market. If Hercules enjoys the same level of success that we have witnessed the Italian GACS deliver, then this will have widespread, positive ramifications for not only yield-hungry investors but also the handful of systematic Greek banks that have balance sheets saddled with large volumes of NPLs.
Indeed, we have long advocated the view that securitisation has the potential to play an integral role in the removal of swathes of NPLs that are currently stifling banks. In fact, the feasibility of such a product was the subject of an article that I published in 2014 in the autumn edition of CRE Finance World and subsequent blogs. Since then we have been delighted to witness how this technology has not only been deployed in the form of GACS but also actively embraced by trail-blazing funds to maximise returns on their investments.
The fact that the Greek government has chosen to follow the Italians in deploying this technology could be significant for two main reasons. Firstly, these developments provide yet another rebuttal to one of the chief concerns raised by the 2014 article: that the myriad of structural complexities that needed to be overcome for the execution of a deal presented too high a bar for the beleaguered securitisation market. Secondly, when this new regime is considered alongside the Italian GACS structure, the successful execution of various NPL securitisations that have graced the market in recent years as well as the commendable efforts of various legislative bodies to put in place the necessary infrastructure to support these types of transactions (such as servicing laws), then it would be fair to say that the approval of Hercules can be considered to be the most important stamp of approval yet for deploying securitisation as a solution for NPLs.
Ultimately though, only time will tell whether the Greek market will indeed enjoy the same level of success as the Italians. However, one thing that is abundantly clear is that given the incessant pressure on banks to offload significant volumes of NPLs and the fact that Greek legislature has decided to embrace securitisation technology as the tool of choice to achieve this, Hercules has the latent potential to deliver an astronomical boost for the European NPL securitisation market as a whole.