New arrangements for red loans

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The decision of the Bank of Greece (EPATH 195/1 / 29.7.2016) was published in the Government Gazette (Government Gazette ΒΔ 2376 / 2.8.2016), which amended and supplemented the Code of Ethics for the management of non-performing private debts.

The Code of Conduct establishes general principles of conduct and adopts best practices for both lending banks and borrowers, with the aim of finding solutions to the settlement or final settlement of arrears, taking into account the possibilities and specificities of each code. a series of solutions, in addition to the partial or total write-off of the debt, in favor of the borrower who will cooperate with the bank and which are not foreseen today, thus paving the way for the final solution of the problem.

Under the new code, each institution applies the following steps in handling borrowers with arrears, as well as in cases with signs of possible arrears:

Stage 1: Communication with the borrower.

Stage 2: Gathering financial and other information.

Stage 3: Evaluation of financial data.

Step 4: Proposing the appropriate solutions to the borrower.

Step 5: Objection process.

The new code streamlines the bank’s communication steps with the borrower, with the aim of completing the entire process and the debt settlement agreement within about six months of the first written notice being sent. The same steps now apply to the loan guarantor, who will receive a corresponding update and will have the same obligations as the borrower. The borrower should respond and cooperate with the bank, informing it about its financial situation, which will be the criterion for choosing the appropriate solution.

The Annex to the decision indicates the most common types of arrangements and final arrangements in international practice for a borrower who is in a difficult financial situation and is unable to meet the existing credit terms. Among them are:

Types of short-term settings

The short-term types of arrangements are considered to be the types of arrangements with a duration of less than two years that relate to cases where the difficulties of payment are considered, reasonably, temporary.

(1) Arrears Capitalization

(2) Settlement of Arrears (“Arrears Repayment Plan”)

(3) Reduced Payment Above the Debt Interest (“Reduced Payment above IO)

(4) Payment of Interest Only (“Interest Only”)

(5) Reduced Payment Below Interest Due (“Reduced Payment Below Interest Only”)

(6) Grace Period

Types of long-term settings

Κατατάσσονται οι τύποι ρύθμισης με διάρκεια μεγαλύτερη των δύο (2) ετών, με στόχο τη μείωση της τοκοχρεωλυτικής δόσης ή/και της δανειακής επιβάρυνσης, λαμβάνοντας υπόψη συντηρητικές παραδοχές για την εκτιμώμενη μελλοντική ικανότητα αποπληρωμής του δανειολήπτη μέχρι τη λήξη του προγράμματος αποπληρωμής.

(1) Μείωση Επιτοκίου (“Interest Rate Reduction”)

(2) Παράταση Διάρκειας(“Loan Term Extension”)

(3) Διαχωρισμός Οφειλής (“Split Balance”)

(4)Μερική Διαγραφή Οφειλής (“Partial Debt Forgiveness/ Write Down”)

(5)Λειτουργική Αναδιάρθρωση Επιχείρησης (“Operational Restructuring“)

(6) Συμφωνία Ανταλλαγής Χρέους με Μετοχικό Κεφάλαιο (“Debt/equity Swap“)

Final Settlement Solutions

A final settlement solution is defined as any change in the type of contractual relationship between the borrower or its termination, with the aim of definitively settling the institution’s claim against the borrower.

(1) Other Out of Court Settlements

(2) Voluntary Mortgage Delivery (“Voluntary Surrender”)

(3) Conversion to Mortgage to Rent / Lease

(4) Voluntary Sale of Property (“Voluntary Sale of Property”)

(5) Settlement of Loans

(6) Auction Collateral Repossession

(7) Full Debt Write off “