Greek bankers cautious on Hercules plan; ECB stance crucial

Bank officials remain cautious about a plan Greece is working on aimed at reducing bad loans held by lenders that was approved by the European Commission last week. Although the scheme, called Hercules, was given the green light in Brussels just a few days ago, some in the industry are already talking about the need for a Hercules II plan, citing concerns about the initial proposal's ability to solve the bad loan problem faced by the financial system.

In order to find out more about the scheme, bank officials are waiting to see the draft bill on Hercules that will be submitted to parliament soon. A key area of concern is the cost of participating in the plan for lenders, while doubts linger as to whether the European Central Bank will sign off on it.

Sources have indicated that Greece and Deputy Finance Minister George Zavvos, who is in charge of the proposal, drew up Hercules without holding the necessary talks with European banking supervisors. The future of the plan will be largely determined by the ECB, which consists of many different voices and trends.

The plan is deemed to be too conservative to make a difference to Greece's banking system. Having been excessively based on the Italian model, only minor changes were made to adapt the scheme to Greece's economic reality.

Although it is a very positive step for the country's financial system, it does not decisively help banks offload some 75 billion euros of non-performing exposures (NPEs) sitting on their balance sheets, point out sector officials.

What the Greek government appears to have missed is that banks will incur hefty losses if they fully take part in the plan due to the high cost of securitizing NPEs of inferior credit quality. This, in turn, could trigger the deferred tax credits held by Greek lenders forcing them to issue shares in favor of the state.

Talk has already emerged of the need to launch new initiatives that will help lenders improve their asset quality more efficiently, with some officials talking about a Hercules II plan, while others point to the Bank of Greece proposal.

YANNIS PAPADOGIANNIS