Spanish model proposed for bank debtors

Finance Minister Christos Staikouras has asked banks to consider the Spanish model for helping financially weaker borrowers who have mortgage debts and have been hit by rising interest rates.

The model agreed early this week between the Spanish government and the country’s banks provides for the extension of the duration of housing loans in order to reduce the monthly installment to the level of 40% of the monthly income, and the freezing of the interest rate at the Euribor level for those households considered vulnerable.

The model was discussed at Thursday’s meeting held by Staikouras with the heads of the four systemic banks and the board of the Hellenic Bank Association. The meeting was held at the urging of Prime Minister Kyriakos Mitsotakis, to seek solutions and exhaust all possibilities for consistent borrowers.

Sources say Staikouras called on banks to show sensitivity to the needs of society and to come back with proposals, after examining their financial data and evaluating the practices followed abroad.

The Spanish government’s agreement with the country’s banks concerns more than 1 million households, helping them to service their mortgages by extending their repayment time. At the same time, the banks will implement a system of favorable treatment and support for vulnerable families – i.e. those with an annual income of up to 25,200 euros. These families will be able to restructure their mortgages at lower interest rates for a five-year grace period.

The relevant measures were announced by the Spanish Ministry of Finance, but without mentioning the potential costs they entail for financial institutions, as well as whether banks will need to make more provisions against nonperforming loans. It should be noted that the latest figures show that the nonperforming loans of Spanish banks are at historically low levels, at only 3.86% of the total, compared to the 7-8% average of the four systemic banks in Greece based on the nine-month data.

Greek bank managers pledged to study the proposals, but emphasized the fact that the Spanish model cannot work in Greece because, as they underscored, the majority of housing loans in this country have already been rearranged. A new arrangement would push these loans into the red and effectively render them NPLs.