In the banking market, they say “Hercules” has proved worthy of its name. Of course, they’re not talking about the mythic hero. They’re actually referring to the scheme put in place to tackle the problem of non-performing loans which, seeing as these represent the bulk of private debt, is truly an issue of mythic dimensions.
At the peak of the problem, one in two loans was in arrears. Hercules, the mechanism for transferring loans outside the banking system, did what it was created to do. It revitalized bank credit and bolstered growth. But the weight of Hercules’ club fell on the borrowers. Not because their loans should have been written off, or made subject to any of the other ridiculous schemes that have been bandied around for years in the public conversation.
No, the weight fell on the borrowers, because they should have been left with at least the same rights they enjoyed when they took the loan out with their bank. They were deprived of this possibility by the procedure which saw their loans acquired by a fund in the context of a loan securitization (a move about which the consumer was not consulted in most cases) and the management of those loan subsequently entrusted to servicers, meaning the companies that manage non-performing loans.
For their part, the servicers put the ball in the government’s court. They say they’re not the same companies. They say their freedom to act is restricted. They argue that each loan package is accompanied by a specific operational plan whose execution is monitored by the State, which has guaranteed it and which can relieve the servicers of a portfolio if the target shortfall exceeds 15%-20%. But that’s not all they claim. They also say they’re not free to choose to auction a property.
They say they prefer this option, but that a government agency, the consumer protection agency, is forever fining them for implementing the provision in question, telling them they’re doing a poor job carrying out the task another government agency, the one that deals with private debt, has charged them with.
We saw this recently with doValue and Cepal, while there have also been complaints about Intrum. More and more people believe the time has come to put an end to the blame game.
These institutions manage the majority of Greece’s private debt (90 billion Euro), and if we want to say that we live in a state which respects the Rule of Law, we will have to develop a supervisory and operational institutional framework at the banking level. It is the least we can do for the thousands with forborne loans who have found themselves entangled in the problematic procedures of the companies in question, and for the entrepreneurs who are struggling to get their companies back on their feet.