“Red Loans” - How will be settled

The plan of BoG in detail

The Draft Code of Conduct for the management of non-performing loans was send by the Bank of Greece to the banks. The syntax of the code is provided by Law 4224/2013, which establishes among other the "permanent mechanism for resolving the non-performing private debt."
The Code of Conduct refers to the concepts of "collaborative" borrower and the "reasonable living expenses", as defined by the decision of the Governing Council of Private Debt Management, as provided by the above law. But it is still pending the specificity of the terms "collaborative borrower" and "reasonable living expenses", which adopts the Code.

According to the Code, each bank must first set in detail, the documented Procedures for Resolving Delays via the classification of loans and borrowers, suitable for adherence to the Code, in which must be describing in details the documented procedure of the inquiry of the objections.

Each institution should have a "Information Sheet for borrowers with financial difficulties" in plain language. The above Sheet is made available in paper form (necessarily inside the banks and through post, at least where expressly provided in the Code and at the discretion of the institution independently from the express provision in the Code) and in electronic form on the website of the banks.

The Resolution Procedure Delay provided by the Code will be made in five stages:

Step 1: Contact with the borrower.

Step 2: Collection of financial and other information.

Step 3: Evaluation of the economic data.

Step 4: Proposal of appropriate solutions to the borrower.

Step 5: Inquiry Procedure of objection.

Each institution should strive as much as possible the early contact with the borrower, ie as soon as delays occur or seen any warning signs of a possible delay. Borrower who is experiencing financial difficulties, or reasonably estimates that it will face financial difficulties in the future and which believes that it is entering or may enter Standby delay must declare in writing to the institution that wishes to join the provisions of the procedure.

The Code includes a list of "alternatives" that can recommend banks to their customers. The list distinguishes the options to current or permanent option. It even includes "voluntary assignment of property" on the part of the borrower or signing a deal of the type of sale and lease bank.

The list of options is as follows:

- Short-term solutions include setup options of payment of interest only during a short period, granting a grace period and the possibility of reduced installments during a short period.

- In the menu of long-term solutions include the permanent interest rate reduction or conventional margin, change Release Rate (eg from floating to fixed), the extension of the duration.

The final settlement is defined as any change in the type of contractual relationship between the bank and the borrower or the termination thereof, with a view to a final settlement of the claim of the institution to the borrower.