2022 Perspectives for the Public Sector

Citi Perspectives for the Public Sector 39 In March 2021, the Greek Ministry of Finance announced that it had applied to the government to renew the Hercules Asset Protection Scheme (HAPS), an initiative that encourages banks to securitize bad debt by giving a state guarantee on the least risky tranche of notes for sale. This will help Greek banks to shake off the burden of non- performing exposures, and give them more room to lend to the productive economy. In addition to HAPS, Greece is considering the creation of a bad bank. A plan was submitted by the central bank to the government in September 2020 for the transfer of €40-45 billion of bad loans to an asset management company. The two initiatives should complement each other, and would help Greek banks to shift their focus from battling bad loans to ramping up new lending. Conclusion While the timing and magnitude of the increase in NPLs is still uncertain, we can be certain an increase will transpire in the near future, as payment moratoria come to an end and the true impact of the pandemic is revealed. In the meantime, governments must lay out a comprehensive strategy to prevent a future build- up of NPLs and to maintain banks’ asset quality and in turn their lending capacity. Only by doing so can they safeguard the health of the financial system and the wider economic recovery. While the timing and magnitude of the increase in NPLs is still uncertain, we can be certain an increase will transpire in the near future, as payment moratoria come to an end and the true impact of the pandemic is revealed. In the meantime, governments must lay out a comprehensive strategy to prevent a future build-up of NPLs and to maintain banks’ asset quality and in turn their lending capacity.