Galery

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The Bank of Greece published a code for the management of problem loans, which outlines the basic rules which will be followed in the restructuring of non-performing loans. It describes in detail what both sides - the bank and the borrower - should do in order to tackle the problem. This is not the final version and will be subject to discussion.

The stages of restructuring

Each bank will apply the following steps in the treatment of loans which are delayed, as well as in cases of a possible delay.

Stage 1: contact with the borrower;

Stage 2: collection of financial and other information;

Stage 3: evaluation of financial data;

Stage 4: suggestion of appropriate solutions to the borrower;

Stage 5: verification procedure of the appeal.

In the first stage, within a specified period, the bank will contact the debtor according to whether it is a credit with a possible delay or one which has already been delayed.

In the second stage, the bank may ask the debtor to present documents in order to verify the information on his or her financial situation, setting a time limit for its submission.

In the third stage, each bank will verify and evaluate the information provided by the debtor, as well as any financial data from other sources, in order to assess the economic situation of the debtor, the total amount and nature of his or her debts, his or her current repayment ability, the history of the debtor’s financial behaviour and his or her expected repayment ability.

A suggested solution

After passing through the stages, each bank will offer an alternative solution for debt restructuring; the code allows for appeal.

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The package of solutions

Short-term solutions

Suggestions for temporary relief of the debtor:

a. interest only in the short term;

b. reduced interest repayment in the short-term;

c. grace period;

d. postponement of payments of instalments; settlement of delayed balance;

e. capitalization of the delay.

Long-term solutions

Their repayment period is 5 years or more:

а. permanent reduction in the interest rate;

b. a change in the type of interest rate (e.g., from floating to constant);

c. extension of the duration;

d. separation of the mortgage loan into:

1. A viable unsecured loan which the borrower will pay on the basis of an expected future repayment ability, and

2. Balance of the loan, which does not accrue interest until a later repayment date. By this later date or before it, a reassessment of the borrower’s repayment ability will be made or an approximate evaluation of the realization of revenues from securities or other assets with conservative assumptions;

e. additional collateral by the debtor within a broader decision;

f. functional restructuring of the company;

g. agreements for the exchange of the debt with equity capital.

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Final decisions

A final decision will be any change in the type of contractual relationship between the institution and the borrower or its termination, with a view to the final settlement of the claims of the institution against the borrower, which can be accomplished via one or more of the following solutions suggested in the context of international practice:

a. a voluntary transfer of the mortgaged property;

b. a conversion into leases via which the borrower will transfer ownership of the property to the bank and sign a lease for a minimum period (usually five years). The borrower acquires the rights provided under the law on leasing contracts;

c. a sale and lease via which the debtor will transfer ownership of the property of the institution or a third party (another institution, another buyer, a state-owned property management company, etc.), paying the entire loan or part of it. The contract may be accompanied by a transfer of the right to reside in the property for a short period (usually 3 years) paying rent;

d. transfer of the loan to another bank;

e. replacement of the old loan with a new one with a smaller balance;

f. credit management within a procedure of declaration of bankruptcy;

g. liquidation of the collateral in order to satisfy the demands of the bank;

h. court / legal actions for the liquidation of the collateral.

Debtors who refuse cooperation

1. Before the bank considers a debtor non-cooperative, it is obliged to inform him or her in writing with a return receipt about the following:

a. actions to which the borrower has to proceed and the due date in order to avoid this development, as well as a warning that if debtors do not proceed to this, they will be categorized as unresponsive without further notice;

b. legal consequences of the identification as unresponsive are associated with possible measures such as bankruptcy, auction, freezing of assets, etc.

c. the opportunity for the debtor to have advisory, legal and financial support from state organizations;

d. the fact that after the liquidation, the possible balance of the loan will continue to be taxable by bank;

2. After a debtor is determined uncooperative, the bank is obliged to inform him or her of this event within 10 days in writing with a return receipt, as well as about the following:

a. the fact that he or she has been determined as uncooperative, as well as the reasons for this;

b. details and the schedule, based on which the bank will proceed with any legal proceedings (liquidation or others);

c. assessment of their value for the debtor;

d. expected impact on the credit rating of the borrower based on the internal procedures of the institution;

e. the risk of liquidation of any collateral provided by guarantors;

f. the fact that the debtor and possible guarantors will continue to be liable for any remaining balance after the liquidation of the collateral, as well as the way of interest accrual;

g. the fact that any restrictions on fees and penalties provided by the provisions of the contract may be terminated and other existing laws or regulations may be applied.