Τransfer of receivables from Non-performing loans in Greece

Non-performing loans (NPLs), or common “red loans”, are bank loans that are subject to late repayment or are completely impossible to be repaid by the borrower. The financial crisis of 2008 and the subsequent recession made it very difficult for many Greek citizens to repay the business, housing or consumer loans they had received. As a result, this led to an accumulation of non-performing loans in banks. This accumulation of NPLs slowed down bank lending, economic growth and threatened financial stability.

What is the situation of NPLs in Greece today?

Today, half of the overdue bank loans in Greece are terminated, while the rest are divided into overdue over 90 days and unlikely to pay, according to the European Central Bank. It is also noted that about 15 billion euros of non-performing loans relate to loans that are under legal protection status.

The Greek state in order to proceed with the consolidation of the phenomenon in the Greek economy has taken certain actions such as:

Strengthening the supervisory and regulatory framework of Greek banking institutions by requiring them to establish an organizationally independent non-performing loan management unit, to establish a clear management strategy for these loans, to categorize non-performing loans in their portfolio based on characteristics, and types of arrangements for each category of non-performing loans and to make the best assessment of the financial situation of the borrowers, to ensure that the implementation of management is supported by the appropriate computer systems, procedures and administrative information systems, to submit increased information to Greece with regard to non-performing loans.

What is the legal status of the transfer and management of NPLs in Greece?

The relatively recent laws of 2015 and 2016 made it possible to assign the management or transfer of non-performing (under specific conditions) and non-performing bank loans to management companies (servicers) and acquisition companies, for the receivables from non-performing bank loans. In turn, the Bank of Greece established the regulatory framework for the licensing and supervision of servicers and / or the transfer of receivables from red loans.

A typical example of the above strategy was the “Hercules” Plan I and II, in which of course there was the guarantee of the Greek state. By mid-2020, banks under the direct supervision of the ECB held non-performing loans worth more than € 550 billion, which accounted for almost 3% of their total loans. Non-performing loans are steadily declining from the highest level of 2016 (approximately 1 trillion euros). However, the economic crisis caused by the coronavirus pandemic is likely to lead to a sharp increase in non-performing loans: in one case they could reach a level of 1.4 trillion euros by the end of 2022.

What is the subject of a contract for the transfer of bank receivables in Greece and what is the procedure?

According to the provisions of the current Greek legislation, the subject of a contract for the sale and transfer of receivables from loans and credits, as described above, are receivables arising from bank loans, both their initial capital and the interest arising from it, as well as credits that may have been created from open mutual accounts or discount of bills of exchange, etc.

Regarding the validity of such a transfer, the law provides for certain conditions, such as the written form and publicity. More specifically, a transfer agreement is a formal legal act, so if the written form is not observed, it is invalid from the beginning. In addition, it is legally necessary to register this contract in the “Public Book”. The transfer of the relevant rights occurs against a debtor and third parties from the moment of the above registration. The provision of the Law makes a proportional reference to the pledge, adapting the agreements for the transfer of receivables to the publicity process by registering them in the competent pledge registry, whenever rights are acquired against third parties. Of course, apart from the registration in the Public Book, the Law also provides for the written notification of the debtor and the guarantor regarding the registration of such a contract. The announcement to them can be made by any convenient means, i.e. even electronically.

How can the secured claims deriving from NPLs be collected?

Upon completion of the transfer process, as described above, the new owner of the receivables now enters the position of the lender and has the possibility to proceed with the seizure of the assets of the debtor (movable and / or immovable) and to liquidate them through the process of – now – auction or through the consensual after consultation with the debtor (often after part forgiveness / debt reduction).

In addition, in the cases of forced sale (auction), technological development as well as the current global conditions allow the electronic conduct of the auction, a process that guarantees the smooth participation of interested parties, leading to the achievement of the largest possible auction. The electronic auction is carried out through the electronic auction systems (https://www.eauction.gr/) by certified notaries for this purpose. The auction must be set at 7 months after the seizure and not after 8 months.

NEXUS law firm has so far taken on several cases on behalf of debtors involving non-performing loan transfer agreements on behalf of debtors. We recently completed the first transaction on behalf of foreign buyers / investors in NPLs with collateral dealing with legal issues from the opposite side. This transaction concerns the purchase of a NPL package with collateral totaling approximately 14 million euros and the business plan of the investors includes the transaction of the debt or the utilization of encumbered properties located in Athens. It is certain that transactions related to transferable or already transferred NPLs will be much more frequent in the future.