Commission approves prolongation of market conform asset protection scheme for banks in Greece

11 April 2021
Knowledge Base

The European Commission has approved the prolongation of an existing Greek scheme aiming at supporting the reduction of non-performing loans of Greek banks on the basis that it remains free of any State aid. The existing asset protection scheme (known by the name of ‘Hercules’), was approved by the Commission in October 2019, for an initial duration of 18 months. Greece notified the Commission of its plan to prolong the scheme for another 18 months, until October 2022.

The Commission found that, under the prolonged scheme, the Greek State will continue to be remunerated in line with market conditions for the risk it will assume by granting a guarantee on the senior tranche of securitised non-performing loans.

If a Member State intervenes as a private investor would do, and is remunerated for the risk assumed in a way a private investor would accept, such interventions do not constitute State aid. The Commission therefore concluded that the prolonged Greek measure does not involve State aid within the meaning of the EU rules.

Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “I welcome the prolongation of the Hercules scheme, which has already been very successful in providing a market conform solution to remove non-performing loans from the balance sheets of Greek banks, without granting aid or distorting competition. So that Greek banks can fully contribute to the recovery of the Greek economy”.

‘Hercules’ is designed to assist banks in securitising and moving non-performing loans off their balance sheets. Under the scheme, an individually managed, private securitisation vehicle will buy non-performing loans from the bank and sell notes to investors. The State will provide a public guarantee for the senior, less risky notes of the securitisation vehicle. In exchange, the State will receive a remuneration at market terms. The objective is to attract a wide range of investors and to support the banks in their ongoing efforts to reduce the amount of non-performing loans on their balance sheets.

Since the introduction of the scheme in October 2019, Greek banks have made significant progress in reducing the stock of their non-performing loans. In particular, Greece has estimated that, as a result of the introduction of the scheme, the non-performing loans ratio would have declined from 43% at the end of 2019 to 27% at the end of March 2021. The prolongation of the scheme for another 18 months will build on the success achieved so far, with the current applications to the scheme of securitisations totalling €31.3 billion of (gross book value) of non-performing loans.

The Commission’s assessment showed that the State guarantees will continue to be remunerated at market terms according to the risk taken, i.e. in a manner that would be acceptable for a private operator under market conditions. Like in the first 18 months of implementation of the ‘Hercules’ scheme, this is in particular ensured by the following elements:

First, the risk for the State will be limited since the State guarantee only applies to the senior tranche of the notes sold by the securitisation vehicle. An independent rating agency approved by the European Central Bank will determine the rating of the senior tranche.

Second, the State guarantee on the senior tranche will only become effective if more than half of the non-guaranteed and risk-bearing riskier tranches have been successfully sold to private market participants. This will ensure that the risk distribution of the tranches is tested and confirmed by the market before the State assumes any risk.
Third, the State’s remuneration for the risk taken will be market conform.

The guarantee fee will be based on a market benchmark and correspond to the level and duration of the risk the State takes in granting the guarantee. This means that the guarantee fee paid will increase over time in line with the duration of the State’s exposure. This fee structure, in addition to the appointment of an external servicer, aims to increase the efficiency of the workout and likely recovery on the non-performing loans.

All these elements continue to be respected in the prolonged scheme. On this basis, the Commission was able to conclude that the measure remains free of State aid within the meaning of EU State aid rules.


There are several possibilities for Member States to implement impaired asset measures to deal with non-performing loans in line with EU rules both with and without the use of State aid.

Hercules is an asset protection scheme that is designed to attract private investors, which is an aid-free impaired asset relief measure alternative to centralised asset management companies (AMCs). More generally, the Commission has developed a blueprint that provides practical, non-binding guidance to Member States for the design and set-up of impaired asset measures. The blueprint clarifies the permissible design of means and vehicles to deal with non-performing loans under the EU legal framework, in particular the Bank Recovery and Resolution Directive (BRRD), the Single Resolution Mechanism Regulation (SRMR) and EU State aid rules.*

The choice of the type of intervention lies with the Member State and it is always the decision of the Member State whether to grant any State aid. The Commission, as the body responsible for EU State aid control, has to ensure that any measure implemented is in line with EU rules. If a Member State chooses to intervene as a private investor would do, then such an intervention would not constitute State aid and falls outside of EU State aid control.

In February 2016, the Commission approved, under EU State aid rules, an Italian guarantee scheme to facilitate the securitisation of non-performing loans (Fondo di Garanzia sulla Cartolarizzazione delle Sofferenze – GACS). The scheme, which is similar to the “Hercules” scheme the prolongation of which has been approved today, was last prolonged on 27 May 2019. Up to February 2021, the GACS scheme has removed approximately €74 billion (gross book value) of non-performing loans from the Italian banking system.

The non-confidential version of this decision will be made available under the case number SA.62242 in the State Aid Register on the competition website once any confidentiality issues have been resolved. New publications of State aid decisions on the internet and in the Official Journal are listed in the Competition Weekly e-News.

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