At stake in SSM is an offer by banks to support vulnerable households by subsidizing a 50% increase in their mortgage premium due to higher interest rates retroactively from July 2022 to the end of 2023. The subsidy will be administered through a general piggy bank fund to be set up at the Special Secretariat for Private Debt and to which the four systemic banks will contribute, in order to reach those households that meet the income and wealth criteria provided for by law in order to call it vulnerable.

The banks’ proposal provides for subsidizing informed borrowers, i.e. those who do not delay the payment of the loan for more than 3 months, regardless of whether the loans are banks – systemic or not – or they owe funds. This option was proposed by banks to ensure equal treatment of all regular borrowers and not create two-speed beneficiaries, but it is not certain that it will be approved by the supervisory authority. This is due to the release of capital (significant risk transfer) that the banks received when the Greek state agreed on the Hercules mechanism and the so-called assets with zero risk weight, that is, the complete derecognition from the bank’s balance sheet of loans that it securitized.

The mechanism for launching the payment of the subsidy will be “snapped” onto the platform of the Bridge program, which operates in the Special Secretariat for Private Debt Management. Borrowers who meet the income and wealth criteria to qualify as vulnerable will enter the platform that will be open for this purpose and apply for the grant. The amount of the subsidy will be credited to a special account. However, the fee they will pay to the bank will be based on their loan agreement and will not be reduced. So it will be a subsidy in the form of a return of money to the borrower’s account. Accordingly, the amount of the subsidy will be collected by the four systemically important banks into a common fund in the form of a “piggy bank”, through which EGDIX will credit the amounts to the beneficiaries.

The plan provides for subsidizing a 50% increase in the contribution caused by the increase in interest rates.

The reason why banks offer this method of subsidizing is that it does not require changing the loan agreement with the borrower. This model was evaluated in collaboration with the Central Bank of Greece as being able to overcome the supervisor’s doubts about whether these loans should be reclassified and classified as unlikely to be repaid. Depending on whether this SSM proposal is accepted, the final cost of the measure will also be assessed, which consists not only of the amount of the subsidy, but also of the amount of reserves that banks will be asked to accept based on the classification of these loans.

As for the subsidy fund, according to the banks’ calculations, it will be about 20 million euros, and the perimeter of the loans that will be included is estimated at no more than 2 billion euros. Accordingly, the number of borrowers is estimated not to exceed the initial forecast of up to 30,000 borrowers, with the prospect of increasing to almost 32,000 if borrowers whose loans have been securitized are also included in the subsidy scheme.