Significant repercussions—both for households and for the broader economic environment—may arise from the recent ruling of the Areios Pagos on the “Katseli Law,” which held that interest in restructuring arrangements is calculated on the monthly instalment rather than on the total outstanding principal of the debt.

As the formal wording and full legal reasoning of the decision are awaited, sources at the Ministry of National Economy and Finance and the Bank of Greece are already working on next steps, shaping the framework for managing the fallout.

Beyond the immediate impact on the banking system, concerns are also being voiced about the “Hercules” scheme. A potential reduction in recoveries is estimated to create a funding gap of up to €1 billion, raising the possibility of activating state guarantees. However, the effects are not confined to the financial sector.

According to the Bank of Greece, the consequences directly affect borrowers as well. The strain on the cash flows of securitisations heightens uncertainty around existing restructurings and the sustainability of agreed solutions, increasing the economic and social burden for thousands of families.

At the same time, it is stressed that retroactive changes to core financial parameters undermine legal certainty and disrupt the sense of stability built in recent years. The perception that the institutional and economic framework can change abruptly weighs on confidence, affects investment decisions and creates additional risks for overall financial stability.

Five main impacts have already been identified:

1. Reduction in new mortgage lending:
   Due to the easing of high-risk loans, banks are expected to adopt a more cautious stance on granting new mortgages, prioritising borrowers with stable incomes and stronger credit profiles. This could curb overall mortgage flows—especially to households with lower or less stable incomes—affecting housing demand and market dynamics. Bankers also warn of possible interest-rate increases to offset the cost.
2. Concerns over increased foreclosures:
   To cover the funding gap in securitisations, an intensification of auctions and asset liquidations may be required, making the management of these loans more pressing both economically and socially.
3. Investment risks:
   Altering key financial parameters through a court ruling—particularly if applied retroactively—creates substantial legal uncertainty. Investors may perceive rules as unpredictably changeable, increasing risk in securitisations and non-performing loan portfolios. This could hinder investment inflows, affect funding costs and restrict access to capital markets for banks, businesses and the state.
   Rating agency Moody’s noted that, despite stronger capital and profitability, the ruling introduces additional legal uncertainty and poses medium-term challenges to asset quality and the viability of future securitisations.
4. Impact on payment culture:
   Although the ruling concerns borrowers under the Katseli Law, it may foster expectations of similar treatment elsewhere, risking a weakening of payment discipline and a return of strategic defaults—after notable progress in cleaning up bank balance sheets.
5. International anomaly in mortgage interest calculation:
   The decision to calculate interest on the monthly instalment rather than the outstanding balance deviates from standard international banking practice. There is no known equivalent ruling elsewhere establishing this as a general rule.

Pending clarification, a critical issue is the scope of application, including:

• whether it applies prospectively or retroactively,
• which loan categories and restructuring stages it covers, and
• whether it affects ongoing court-ordered restructurings or only pending cases.

This delineation will determine the true scale of the economic and financial impact and the policy response by the Ministry.

Background on the Katseli Law:
Protection of the primary residence was introduced in 2010 (Law 3869/2010) at the onset of the crisis, initially set to expire on 31/12/2018 and definitively ended in February 2019. As implemented, the law showed weaknesses, according to banking sources, including the absence of banking and tax secrecy waivers, long delays until hearings (often over a decade), and very low interim payments. About 43% of applications were rejected, mainly due to findings of bad faith.

For those successfully included:

• Primary residences could be saved with repayment of up to 80% of assessed value over 20–35 years with interest.
• Secondary residences were to be liquidated, though often this did not occur in practice.

Bank of Greece data (end-2024):

• ~195,000 borrowers included in the Katseli Law
• Total loans ~€6.1 billion
• ~€5.4 billion (140,000 borrowers) securitised under the Hercules scheme; the rest remain on bank balance sheets.