The loan market was liberalized

By Vassos Angelito

A new financing opportunity will be available to “red” borrowers who have settled and continuously serviced their debts after the passage of the new draft law of the Ministry of National Economy and Finance, which provides for the liberalization of the credit market.

The legislator’s logic relates to providing access to financing even to debtors – individuals or companies – who faced difficulties in the wake of the ten-year crisis in terms of servicing their loan debts, but were able to get back on their feet. To continue their economic activity.

For these households, as well as for companies, the door to the banking system remains closed due to the strict regulations of the European Banking Authority (EBA) and the Single Supervisory Mechanism (SSM) that do not allow the “greening” of the borrower even if it thus serves debt arrangements vis-à-vis creditors and the state.

The supervisory framework provides for more than two years of stable debt so that the borrower in question is not considered unsafe.

For this “gray area” of debtors, who move between a stable present and a “burdened” past, the legislation enables non-banking entities to grant housing and business (corporate) loans. The first category includes both restructuring existing debts and granting a new housing loan. The second category includes exclusively lending for the purpose of restructuring existing debts.

It is noted that credit companies – as stated by the concerned authorities – do not constitute an innovation, but rather operate successfully in several European countries and others. These are “alternative lenders” (alternative lenders), they are directed at potential borrowers who are rejected by the inflexible banking system, however, they meet a number of conditions that the creditor considers to guarantee good repayment opportunities.

Especially when it comes to debt refinancing, these companies offer the borrower an amount to pay off their debt to the bank or service provider that includes a significant discount. With the creditor’s approval, the “red” loan is repaid on favorable terms and the borrower gets a fresh start. The reason the providers agreed to such a solution was to create upfront cash flows that would serve the ambitious business plans they implemented in exchange for the money that purchased the securitized loans from Hercules.

This creates a new outlet for borrowers in the NPL market and is a “win-win” for all parties involved. Even for borrowers, burdened by high borrowing costs (due to the higher risks borne by credit companies), access to financing is critical to getting back on track.

This ecosystem also includes mezzanine funds that invest in this type of loans specializing in SMEs.

Financial institutions and institutions, such as development banks, as well as private investors, have equity participation in these schemes. In this case, the lending is specifically to companies, while the presence of pledges is a necessary condition.

The aim of the financing is to cover working capital needs and implement the business plan that includes consolidating, restoring and developing the business activity. From the resulting surplus value, investors receive profits that are “locked in” through the agreement they conclude with the entrepreneur.

Positive response

Management companies are also positive about the expansion of the credit market with the entry of alternative players. As senior industry officials recently stated, the new law will help expand citizens’ access to finance as non-banking institutions do not face the restrictions imposed by statutory institutions.

As Theodoros Athanasopoulos, CEO of Cepal and Chairman of the Association of Loan and Credit Management Companies, said at the Capital.gr conference on real estate, “It is something that is needed. We cannot do that in the Western economy.” We have alternative lenders. “It is a piece of the comprehensive housing policy puzzle that is needed.”

“We are very optimistic, and we believe that the new law will contribute to expanding citizens’ access to financing,” he said, explaining that the problem of obtaining financing cannot be solved by pressuring banks to open the financing tap as they have a set of supervisory restrictions – which third parties will not have.

However, it is still unknown how much interest there will be among investors in entering the new market being created in our country. As relevant sources report, potential investors’ expectations of high returns (IRR) and the lack of access to cheap financing enjoyed by systemic banks may significantly increase costs for individuals and companies who will resort to alternative financing bodies.

The only investor to have officially expressed interest so far. Former banker Anthimos Thompoulos entered the new market through the “Hellenic Finance” fund. As mentioned, the expansion of the credit market comes to cover the huge financial gap faced by borrowers who defaulted in previous years and are now excluded from the banking system.

“Relaxes” the supervisory framework

It is expected that the institutions concerned will operate within a more flexible framework of supervision and licensing, given that the competent supervisory authority will be the Bank of Greece and not the Financial Stability Mechanism. This is what sources familiar with the procedures told K, but she made clear that supervision would be substantive and focused.

But the goal is for the licensing procedures to be bureaucratically “lighter” than the corresponding procedures for credit institutions and much faster so that the Ministry of Finance’s strategy of opening the credit market for the benefit of thousands of debtors can be implemented. Quickly and without hassles.