NPL&REO News

Spanish companies are now better prepared to cope with the crisis

Spanish companies are better prepared to face the disruption from the coronavirus pandemic than when the global financial crisis hit, although some vulnerabilities persist, the Bank of Spain governor said.

Spain’s central bank said in its latest financial stability report that risks to global financial stability had increased but measures taken at national and European should help mitigate them.

«Spanish households and non-financial companies are facing this situation with a significantly more favourable financial position than before the global financial crisis,» Bank of Spain governor Pablo Hernandez de Cos said in a separate statement commenting on the central bank’s report.

De Cos, who is also a member of the European Central Bank governing council, said the better relative positive position of Spanish companies was mainly a result of the substantial reduction of their debt in recent years, which is now below the European average.

However, the Bank of Spain said the contraction of the economy in the second quarter would be significantly higher than in the previous quarter, when it showed a quarterly record decrease of 5.2%.

The Bank of Spain also said that the COVID-19 pandemic had lead to an increase of the cost of risk – or the cost of insuring a loan – in banks’ exposures to companies. The challenges for lenders were significant due to the magnitude of the shock in the short-term.

Against this backdrop, the Bank of Spain said that despite the significant reduction in bad loans since 2014, the non-performing loans ratio was still above pre-crisis levels and would experience an increase thus further eroding the bank’s already battered profitability ratios.

Original Story: Reuters| Jesus Aguado, Emma Pinedo
Photo: Photo by Pablo Rodríguez from FreeImages
Edition: Prime Yield

Portuguese banks forced to make €200 million in provisions due to pandemic

Four of Portugal’s largest banks saw their profits halved in the first quarter of 2020 because of the provisions needed to deal with the pandemic crisis.

Caixa Geral de Depósitos (CGD), BCP, Santander and BPI have recorded generic provisions of €200.8 million to face the economic crisis caused by the pandemic, according to Jornal de Negócios. BCP was the bank that put most money aside: €78.8 mn, followed by CGD with €60 mn, while Santander and BPI set aside €30 mn, in what is a cautionary exercise from the banks before what they expect to be an increase in the number of defaults. 

Nevertheless, the effect of provisions on the results of the first quarter of Caixa Geral de Depósitos (CGD), BCP, Santander and BPI has already been felt with intensity: profits have fallen by half in relation to the same period of last year, from €466 mn euros to €246 mn.

Original Story: Eco | News 
Photo: Photo by Alfonso Romero for FreeImages.com
Edition: Prime Yield

Eurobank gets the green light for Greek guarantees on securitization

Eurobank has become the first Greek lender to make use of the government’s Hercules scheme to reduce nonperforming loans after gaining finance ministry approval for state guarantees on senior tranches of its Cairo I and II debt securitisations.

Greek banks have been working to reduce €75 bn of bad loans that resulted from the last financial crisis, which shrank the country’s economy by a quarter.

The Cairo programme consists of three securitisations that together amount to €7.5 bn and will help Eurobank to reduce its ratio of so-called non-performing exposures (NPEs) to 15% in the first quarter.

Shedding the bad debt is crucial for Greek banks’ ability to lend and shore up profits. The Hercules scheme (HAPS) was put in place to help the banks to offload up to €30 bn in bad loans.

The Greek state’s guarantee on the senior notes amounts to about €2.4 bn. 

Original Story: Ekathimerini | News/ Reuters 
Photo: Eurobank website
Edition: Prime Yield

BBVA’s Q1 net profit falls 75% on coronavirus provisions

BBVA announced its first-quarter net profit fell 75.3% from the same period a year ago after setting aside €1.43 bn in provisions to anticipate the coronavirus pandemic impact, prompting the lender to suspend dividend payments for 2020.

BBVA was the only major Spanish bank that had so far not modified or cancelled its shareholder remuneration policy.

The country’s second-largest bank by total assets reported a net profit of 292 million euros in the January to March period.

Original Story: Reuters| Jesus Aguado, Emma Pinedo
Photo: BBVA
Edition: Prime Yield

Millennium bcp Q1 net profits declines by 77%

Portuguese bank Millennium bcp reported a 77% decline in first-quarter net profit to €35.3 mn following its provisions to offset the economic impact of the novel coronavirus.

The outbreak is set to dent Portugal’s economy, with the International Monetary Fund expecting gross domestic product to contract by 8% this year, above the European Commission’s predictions of a 6.8% drop.

“Predictions (…) all show we are in a serious recession,” the bank’s chief executive Miguel Maya said. “We are at a time of many uncertainties; we are working with a lot of market volatility and pragmatism is required to ensure we are able to adapt our strategy.”

The provisions implemented by Portugal’s largest listed bank to cope with the impact of the coronavirus cost nearly €79 mn, it said in a statement without detailing the provisions.

Although the outbreak affected the bank’s net profit, its net interest income rose 6.3% to around €385 mn during the first three months of 2020, it said.

Millennium also operates in Poland, Angola and Mozambique.

Original Story: Reuters | Sérgio Gonçalves 
Photo: Millennium bcp site
Edition: Prime Yield

European banks expected to suffer a €380 bn hit due to pandemic

European banks are expected to duffer a hit of up €380 billion to their capital due to the economic disruption from coronavirus pandemic, but most should be able to absorb the losses, according to the European Banking Authority (EBA).

EU’s banking watchdog said it had carried out a “sensitivity analysis” based on the results of its 2018 stress test of the sector to determine the likely increase in nonperforming loans (NPL) and increased riskiness of their loan books because of the virus emergency. 

The share prices of many European banks have fallen almost 50% this year as investors have anticipated how the economic and financial turmoil caused by the pandemic will hurt their weak profitability and may force some to raise extra capital. 

However, “The starting position of the banks [was] very good at the end of last year [and] the measures put in place since the last crisis have held up”, José Manuel Campa, chairman of the EBA, told the Financial Times.

“As a result of all that, the buffers are large and should be sufficient in the short term so we are not worried about [the banks’] short-term ability to lend to the economy and in the long term to have sufficient buffers to absorb the eventual losses,” he added. 

Assuming an increase of between €169 bn and €291 bn in bad loans at the biggest eurozone banks, the EBA said the hit to their capital would be accentuated by an overall increase in the likelihood of borrowers to default. 

The watchdog’s estimate for the capital likely to be wiped out by the crisis ranged from 2.3 to 3.8 % of banks’ total risk-weighted assets — the main way they measure how much capital they need. Every percentage point of risk-weighted assets is worth about €100bn of capital. 

At the end of 2019, banks had capital equivalent to nearly 15 per cent of their risk-weighted assets — roughly 3% above the level required by regulators. Several measures introduced by regulators in response to the virus have provided banks with capital relief equivalent to about 2% of risk-weighted assets. 

The FT reported this year that European Central Bank officials have held high-level talks with counterparts in Brussels about creating a eurozone bad bank to remove billions of euros in toxic debts from lenders’ balance sheets — but the plan has faced opposition from some EU governments. 

The EBA, which postponed a planned stress test of the sector until 2021 because of the virus, said: “As the crisis develops, banks are likely to face growing non-performing loan volumes, which can reach levels similar to those recorded in the aftermath of the sovereign debt crisis. 

“Capital levels should help banks withstand the impact of Covid-19,” it said, adding: “There could be weaker banks (those with pre-crisis problems or heavily exposed to the sectors more affected by crisis) facing more severe challenges.” 

Total NPLs in the biggest 121 eurozone banks had more than halved in six years to €506bn, or 3.2% of their loan books, by the end of last year. But Greek, Cypriot, Portuguese and Italian banks still have NPL ratios above 6%. 

The watchdog said that 18 per cent of European bank loans were to companies in sectors expected to be hardest hit by the disease, including hotels, restaurants, manufacturing, electricity and transport and storage.

However, it said there were a number of caveats to its estimates, including the government guarantees and moratoria being offered on bank loans in various countries, which could shield lenders’ balance sheets from the impact of the crisis. 

It warned that its analysis was only for credit risk, and there could be “additional losses from market, counterparty and operational risk”. It added it had not taken account of the rise in bank lending since the start of this year, as many companies drew down credit facilities.

Original Story: Financial Times | Martin Arnold and Stephen Morris 
Photo: Photo by Szymon Szymon for FreeImages.com
Edition: Prime Yield

Greece and Italy follow divergent paths on NPL securitization, after pandemic

Before the coronavirus pandemic hit, banks in Italy and Greece had been pinning their hopes on securitization to help them run off billions of euros of toxic debt incurred in the last credit cycle. But the two countries could now follow divergent paths when dealing with bad loans, according to Standard & Poor’s Market Intelligence anaylists’.

Securitization — whereby loans are pooled together and sold on to investors as securities — looks set to remain a viable exit for Italian banks attempting a balance sheet cleanup once the initial shock of the outbreak subsides, analysts say. But for Greece the picture is more complicated.

Both countries came into the current crisis with some of the highest levels of bad debts in Europe, at €110 billion and €70 billion, respectively, as of the end of 2019. Not only do their banks still need to deal with this, but they could also face new inflows of bad loans as struggling borrowers default on repayments during the pandemic.

It is therefore in the interest of all parties, regulators included, that banks have a range of options on the table for unloading bad debts, including securitization, Alessio Pignataro, head of European nonperforming loans at DBRS Morningstar, told S&P Global Market Intelligence.

GACS

The Italian government has been actively encouraging banks to use securitization as a means of reducing bad debts since 2016, when it introduced Garanzia sulla Cartolarizzazione delle Sofferenze (GACS). Under this decree, banks can make use of a government-backed guarantee on the least-risky portion of securitized debt.

Some €23.7 billion of bad debt was securitized under the scheme in 2019, and €47.8 billion in 2018. Some analysts believe that Italy’s securitization wave peaked in 2018, but say that GACS, which has been extended until May 2021, remains a useful tool for banks.

“We believe that securitization will continue to play an important role for banks deleveraging,” David Bergman, managing director and head of structured finance, at Scope Ratings, said in an email, adding that a wave of new defaults could accelerate the pace of deals in 2021. Securitization activity in Italy is set to fall by about 50% to 70% in 2020 as banks pause their deleveraging plans until market conditions improve, according to an April 28 note from Scope Ratings. Italy will see around €6.6 billion of securitizations in 2020 under Scope’s baseline scenario, and €11.8 billion under an optimistic scenario. But the company expects securitization volumes to pick up again in 2021 as banks move to take advantage of GACS before it expires, and said it may depend on the speed of the recovery of the Italian economy.

Pignataro also sees a temporary slowdown in securitization deals in both Italy and Greece, where all of the systemic banks have submitted and agreed to deleveraging plans with European authorities.

Hercules

Securitization as a deleveraging strategy has a shorter history in Greece than in Italy. The Greek government introduced Project Hercules, an asset protection scheme that, like GACS, provides a state-backed guarantee on the least-risky slice of debt, in February this year. The scheme was broadly welcomed by banking analysts, although some warned that it should not be seen as a panacea for Greece’s bad debt woes.

Several banks had already launched major securitizations or were preparing them for market at the time the pandemic hit Greece, including Eurobank Ergasias Services and Holdings SA. The bank’s CEO, Fokion Karavias, reassured analysts in March that the pandemic would not derail its banner €7.5 billion securitization, Project Cairo, a multi-asset portfolio of NPLs. At that point, Eurobank had already signed a binding agreement with a buyer, Italian special servicer doValue SpA.

But it remains to be seen how the balance sheet cleanups of other lenders, such as Piraeus Bank SA, which reported in February that it planned to securitize some €7 billion of bad debt this year, will play out.

Eleni Panagiotarea, head of Greek financial think tank FinGreece and research fellow at the Hellenic Foundation for European and Foreign Policy, believes that the pandemic could pose some material challenges to Greece’s securitization plans.

“Swift implementation, central to restoring banks’ lending capacity at a critical time, is disrupted, and a number of hurdles appear down the road: how the state guarantee will operate considering post-coronavirus conditions, the competition that Greek banks will now face in the European securitization market, and of course, how the value of collateral accompanying the loans to be securitized will be affected,” she said.

She did, however, say she understands that Eurobank has submitted a plan for a third securitization that will make use of a Hercules guarantee.

The Greek government announced in April that it would provide guarantees on up to €2 billion of emergency loans to businesses facing a liquidity crunch thanks to the pandemic.

Talk of bad banks

The Bank of Greece now has doubts that lenders will be able to deleverage quickly enough using securitization, according to local media reports. It is now looking at other options — according to local newspaper Kathimerini, it is understood to be at an advanced stage of preparing plans for a national-level bad bank, which it will submit to the European authorities by the end of May.

But this plan is likely to face stiff resistance from the European Commission, Panagiotarea said.

A broader plan to introduce a pan-European bad bank is also unlikely to come to fruition as there is little appetite for risk pooling in the eurozone at present, she said.

Original Story: Standard & Poor’s Market Intelligence | Sophia Furber and Rehan Ahmad 
Photo: Photo by Vince Varga for FreeImages.com
Edition: Prime Yield

Bankia net profit falls 54% in Q2 due to Covid-19 provisions

Bankia, Spain’s fourth-largest bank by assets, reported a 54% drop in first-quarter net profit hut by higher provisions and lower net interest income. The bank set aside a provision of €125 million to protect its balance sheet and support its customers against the fallout from the COVID-19 disease.

In the January to March quarter, Bankia reported a net profit of €94 million in the January to March quarter.

Bankia, like rival Santander SAN.MC and others, has been taking steps to counter risk as the global economy reels due to the coronavirus crisis.

Like many other European banks, Spanish lenders are also struggling to increase earnings on lending due to low interest rates.

Bankia’s net interest income, or earnings on loans minus deposit costs, fell 8.7% to €458 million. Analysts had forecast it at €473 million.

At the end of March, Bankia had a core tier-1 capital ratio – the strictest measure of solvency – of 12.95% versus 13.02% at end-December, while its non-performing loan ratio stood at 4.9%, down from 5%.

Original Story: Nasdaq|Jesus Aguado
Photo: Bankia Site
Edition:Prime Yield

Bain Capital Credit Agrees to Acquire NPL Portfolio in Greece

Bain Capital Credit, LP announced at June 5th that it has entered into an agreement with National Bank of Greece to acquire a loan portfolio, known as Project Icon. This is Bain Capital’s second portfolio acquisition in Greece since 2018.

The portfolio comprises c. 2,800 non-performing, predominantly secured, corporate contracts with total principal amount of c. €1.6 billion. The collateral securing the loans is mostly industrial, commercial and residential real estate assets.

“We are excited to expand our presence in the Greek non-performing credit market and to have assisted one of the largest Greek banks in its deleveraging,” said Alon Avner, Managing Director and Head of Bain Capital Credit’s European business. “Project Icon demonstrates our ability to complete highly complex and innovative transactions despite the challenging environment caused by Covid-19 and further demonstrates our commitment to the Greek market”

Support in executing this deal for Bain Capital Credit was provided by Hellenic Finance and Eurobank Financial Planning Services S.A.. Arbitrage Real Estate, Delfi Partners, Property Solutions Asset Management, Prime Yield and Solum Property Solutions provided real estate valuation advice, whilst Kirkland & Ellis, Zepos & Yannopoulos and Serafeim Sotiriadis & Associates provided legal assistance. Other financial due diligence and advisory was performed by Deloitte. Sioufas & Associates Law Firm provided support to the investor. 

Original Story: Bain Capital site
Photo: Photo by Michalis Famelis / Wikimedia Commons
Edition: Prime Yield

Portugal to extend loan moratorium to avoid jump in NPL

Portugal will extend its six-month suspension on debt repayments beyond September for as long as it takes to avoid jeopardising the banking system with a jump in bad loans when the measure is lifted, Finance Minister Mario Centeno said.

The suspension, in place since March, can be applied for on bank loans to companies and individuals, including on household mortgages.

Originally due to expire in September, the scheme has already led to the postponement of €12 bn in interest and capital payments, the Finance Ministry estimates.

Centeno said the indefinite extension was aimed at ensuring that any surge in bad loans «can occur at a time when the trajectory of the Portuguese economy, in the global context, is more certain».

“We are ensuring that we do not put banking institutions or their customers at risk,” he said.

The chief executives of Portugal’s five largest banks, which together make up 80% of the country’s banking system, had called for such an extension during parliamentary hearings last month.

“These moratoriums are crucial … and will have to be adapted over time, and extended. That’s exactly what we’re going to do,” Centeno said.

The country is expected to suffer an 8% blow to its GDP in 2020 due to coronavirus pandemic, according to the International Monetary Fund. The European Commission estimates a 6.8% contraction.

The country’s banking sector is still scarred from a debt crisis and spike in non-performing loans (NPLs) after the 2010-13 recession, which put great pressure on capital ratios and led to the collapse of banks such as Banif in 2015.

Portuguese banks have since battled to reduce NPLs, bringing them down to a total of €17.2 bn in December 2019, from a peak of €50 bn in June 2016.

Although the NPL ratio for Portugal’s banks dropped to 6.1% of total credit in December, from 17.9% in mid-2016, it is still about twice the European average.

Portugal’s banks have lifted their average common equity Tier 1 solvency ratio to 14.1% in 2019, from 7.8% in 2011.

Centeno said the recovery strategy for the Portuguese economy would need to be aligned with and coordinated at European level.

“We will not be able to recover our economy until the European single market, to which we export 75% of what we produce, recovers,” he said

Original Story: Reuters | Sérgio Gonçalves
Photo: Photo by Lotus Head for FreeImages.com
Edition:
Prime Yield

Spanish real estate prices fell 1.1% in February year-on-year

The number of properties sold in Spain in February dropped 1.1% year-on-year and 5% compared to the previous month, according to latest figures from the National Statistics Institute (INE).

In last data to be collected before native transmissions of the coronavirus hit Spain, the residential sector fared worse month-on-month, down 6%, though year-on-year it gained 0.1%.

Spain’s property market has had a rollercoaster two decades, with a slow but steady recovery in the past eight years as it emerged from a near six-year recession provoked by the explosion of a real estate bubble in 2007.

The autonomous regions of Catalonia and Madrid, both real estate powerhouses, saw their property sales stumble 4.4% and 3.2% respectively year-on-year for February.

The two regions registering the steepest annual drop in property sales for the month were La Rioja at 36.4% and the Basque Country at 20.7%.

However, sales ballooned between 8% and 12.7% year-on-year in the Balearic Islands, Andalucia, and Aragon.

The nationwide rate of property transfers, for its part, slackened by 1.1% compared to the same month last year, representing a compound annual fall of 2.9%.

Meanwhile, Madrid and Catalonia saw property transfer rates tumble 8.2% and 6.2% respectively relative to February 2019.

Original Story: Reuters |Clara-Laeila Laudette, Belen Carreno and Jesus Aguado 
Photo: Photo by Philipp K for FreeImages.com
Edition: Prime Yield

Portuguese companies have already applied for billions from Covid-19 credit lines

Struggling Portuguese firms have already applied for billions of euros in credit lines through a government scheme to help them through the coronavirus crisis, the government said on Tuesday.

Economy Minister Pedro Siza Vieira said applications so far amounted to just over three quarters of the of the €6.2 billion worth of credit lines on offer as part of a government package to help businesses weather the impact of the virus.

A survey of nearly 9,000 companies by the National Institute of Statistics (INE) and the Bank of Portugal, published on April 21st , showed that half say they cannot operate for longer than two more months without further liquidity support.

One in 10 firms say they cannot operate for more than one month.

Siza Vieira said there were around 21,000 requests made by companies for government credit lines, which were expanded earlier this month after a state aid package worth 13 billion euros from the European Commission helped shore up the country’s finances.

The government has approved around €558 million of the €4.8 billion requested but Siza Vieira said he expected more requests to be given the green light over the next few days.

Most non-essential services have been largely shut since Portugal declared a state of emergency on March 18, since renewed until May 2, and half of companies have laid off at least some of their workers.

Official data showed the number of those registered as unemployed jumped 9% in March compared to same period last year.

But companies have already been hard hit by the lockdown, with some firms in the accommodation and restaurant sector suffering more than a 75% drop in revenue.

Some are attempting to adjust to the change in demand, with one in three firms modifying or diversifying their services since the outbreak, the INE and the Bank of Portugal survey showed.

Still, the virus outbreak looks certain to push Portugal’s once-bailed out economy into recession. The International Monetary Fund expects the country’s gross domestic product to contract by 8% this year.

Original Story: Reuters | Catarina Demony and Victoria Waldersee 
Photo: Photo by Ricardo Gurgel /FreeImages.com
Edition: Prime Yield

No bankruptcy for Greek debtors without total liquidation

Worried for their own survival during the Covid-19 pandemic, people in Greece who owe money to the state or banks and can’t pay will be eligible for bankruptcy only if everything they own is taken from them.

The New Democracy government, praised for its response to handling the crisis, has ended the Katseli’s Law that provided relief for people who couldn’t pay their bills because of almost a decade of harsh austerity measures.

Those included big pay cuts, tax hikes, slashed pensions and worker firings and has already seen many lose their homes to foreclosure after the former ruling Radical Left |SYRIZA,  with then-premier Alexis Tsipras breaking his vow of “not one home in the hands of banks,” let them seize properties.

Now New Democracy’s plan is let debtors be free of what they owe banks and the state and other creditors two years after they file for bankruptcy and 12 months after the procedure ends, but only have had all their assets liquidated after a court decision, according to the new bankruptcy code blueprint Kathimerini has seen.

The government wants the new framework to be ready in the next couple of months under a plan designed to appease Greece’s creditors, the Troika of the European Union-European Central Bank-European Stability Mechanism (EU-ECB-ESM) and banks.

It will replace the Katseli Law, the main residence protection status and the clauses about the bankruptcy of enterprises, the paper said, pushed through quietly while people were distracted with the fear of Covid-19.

The Katseli Law designed to protect people was too lengthy, the government said, as it could take up to 15 years to complete bankruptcy procedures and banks want their hands on properties and people’s asset faster,.

That doesn’t include New Democracy and its former coalition partner the now-defunct PASOK Socialists who owe some €250 million in bad loans that aren’t being paid and with a former Conservative government giving immunity to the bank officers who approved the payouts to the parties.

Original Story: The National Herald |  TNH Staff
Photo: Photo by Lotus Head /FreeImages.com
Edition: Prime Yield

There’s high probability of losses within Portuguese banks this year, APB warns

There is a high probability of losses within Portugal’s banks this year, due do the Pandemic, the Portuguese Banking Association (APB) warns.

Fernando Faria de Oliveira, APB’s President, says the banks are being unfairly criticized. «They are doing everything in their power to help», he said in an interview with Radio Observador. In addition, the banking sector is also concerned about the impact of the crisis and is already anticipating losses. «The probability of banks turning negative already this year is high,» declared the president of APB.

«Everything indicates we will have the biggest recession probably since I’ve been alive. When there is a recession, the banking sector is deeply affected,» explained Fernando Faria de Oliveira.

«Each month in lockdown represents a huge decrease [in economic activity], and the probability that banks will return to negative results already this year is high,» stressed the APB president. «Banks will have to do everything to avoid complicated situations, but it will be very difficult,».

Faria de Oliveira explained the impact of the crisis on banks in this way: with more families and companies in difficulty, the level of default credit could increase considerably, leading to «a higher level of provisioning for banks». «What we have to admit is that banks need to manage their balance sheets very prudently,» he concluded.

Original Story: ECO News | News
Photo: Photo by Alfonso Romero /Free Images.com
Edition: Prime Yield

Spain’s banks overwhelmed with requests for mortgage relief

Banks are being overwhelmed with requests from customers for mortgage payment holidays to help mitigate the impact of Spain’s coronavirus epidemic, which has led to hundreds of thousands of job losses during a strict lockdown.

Lenders have declined to say how many requests they have had, but banking staff told Reuters they had been inundated.

«We have received 2,000 queries as of last week, » said a head of client solutions at a top-five Spanish bank, who did not want to be named because of the sensitivity of the topic.

Many did not meet even «the most basic conditions» for mortgage relief set by the government, the source added.

He said the bank was trying not to lose clients who were meeting their payment obligations before the crisis and offering them options such as six-month extensions to the terms on their mortgages.

Mortgages represent around 40% of Spanish banks’ gross loans, accounting for close to €500 billion, according to Bank of Spain data.

Another retail banker at a leading lender said it had received more than 1,000 queries through online channels in just one day and staff were ill-prepared to deal with that number.

The Spanish Mortgage Association estimates that there were around 7 million residential mortgages by the end of 2019.

On March 31st  – as part of an ever widening raft of economic support measures in a country where the virus infected and killed thousands and paralysed the economy – the government extended the mortgage payment holiday entitlement for eligible customers to three months. 

However, tough qualifying conditions – such as the mortgage payment having to be more than 30% of household income, limits on the level of that income and workers having to present certificates proving they are unemployed – means many may not be able to take advantage.

«With these harsh conditions the (payment) moratorium is doomed to fail» said Manuel Pardos, head of Spanish consumer group Adicae.

Original Story: Reuters | Jesus Aguado 
Photo: Big Stock Photo
Edition: Prime Yield

Debtors will lease back their homes from the State

Greece’s new bankruptcy code will provide for the main residences of bankrupt borrowers considered financially vulnerable to be transferred to a state entity and leased back to the original owners. This will replace the existing framework for the protection of debtors’ main residence from repossession.

The government is therefore examining the creation of a corporation that will take ownership of the borrowers’ homes and lease the property back to them, with the possibility of a buyback option under certain conditions. This proposal appears to enjoy the support of banks, which are keen to find a way to stop bad mortgages from soaring due to the financial crisis resulting from the coronavirus pandemic.

This idea was discussed extensively at a teleconference with the participation of government and credit sector officials and will form part of the new bankruptcy legislation to replace the existing protection system that expires on April 30.

Borrowers will be eligible for this scheme after the liquidation of all their assets, as long as their monthly disposable household income does not exceed the standard living costs as determined by the Hellenic Statistical Authority (ELSTAT), and the officially determined value (“objective value”) of the main residence does not exceed 120,000 euros for a single borrower, rising by 40,000 euros for a married debtor and another 20,000 euros per child (up to three children).

The transfer of a debtor’s main residence to that entity will be at a price equal to the commercial value of the property. The borrower will be able to stay in the property paying a monthly rent for 12 years. Three years after the start of the lease, the debtor will obtain the right to transform the rental agreement into a 20-year contract with a buyback option.

The blueprint, which is still being discussed between the government and the banks, will provide that the rent will be set based on the average floating mortgage rate adjusted to the European Central Bank interest rate.

If the debtor pays all rental tranches for the duration of the contract, they will regain ownership of the home or be able to transfer it to their legal heirs. However, the agreement will be terminated if the borrower fails to pay three monthly rents.

Original Story: Ekathimerini | Evgenia Tzortzi 
Photo: Photo by Takis Kolokotronis / FreeImages.com
Edition: Prime Yield

Portugal bank lobby calls state and EU action to avert bad loans

Portugal’s banking association (APB) is calling on the government and the European Union to stimulate the economy to prevent a sharp rise in bad loans as a result of the coronavirus crisis.

The country’s banking sector is still scarred from a debt crisis and spike in non-performing loans (NPLs) after a 2010-13 recession which led to the collapse of banks like Banif in 2015.

Portuguese banks have since battled to reduce NPLs, bringing them down to a total of €17.2 billion in December 2019, from a peak of €50 billion in June 2016.

«It is crucial to adopt measures to mitigate the effects of this public health situation on the ability of companies and families to continue to be able to guarantee the payment of their (credit) responsibilities,» Portuguese Banking Association head Fernando Faria de Oliveira told Reuters.

Portugal’s tourism-dependent, export-driven economy is wilting from the sudden drop in global demand, with more than 30,000 firms applying for government support to pay half a million workers as activities grind to a halt.     

Although the NPL ratio for Portugal’s banks dropped to 6.1% of total credit in December, from 17.9% in mid-2016, it is still about twice the European average.

«It is already widely recognised that we will have a recession in the economy, which will probably be quite severe,» Faria de Oliveira said, adding it was «premature» to give estimates on NPLs resulting from the coronavirus crisis.

The Bank of Portugal has forecast that the country’s economy will shrink between 3.7% and 5.7% in 2020, against growth of 2.2% in 2019, as the coronavirus pandemic hits private consumption and investment and exports collapse.    

Faria de Oliveira said the «response of the European Union (EU) will be absolutely critical to fight this pandemic, in the short term, and to relaunch economies afterwards».

«Much deeper, even radical, action is expected from the EU,» he added, in order to avoid serious damage to companies and high unemployment.

Portugal will boost its credit lines for businesses struggling with the coronavirus outbreak to €4.2 billion, after a state aid package from the European Commission helped shore up the country’s finances.

Portugal’s banking sector was committed to supporting the economy in line with government decisions, as long as it does not jeopardise financial stability, Faria de Oliveira said.

The Portuguese government has approved a 6-month moratorium on the payment of instalments by households and companies.

Lisbon also gave state guarantees to €3 billion of credit lines to support companies, with a further €10 billion in the pipeline.    

Portugal’s banks have lifted their average common equity Tier 1 solvency ratio to 14.1% in 2019, from 7.8% in 2011, Faria de Oliveira said.

But although they are stronger to face «adverse shocks», their profitability is below the cost of capital, he added.

Original Story: Market Screener | Sérgio Gonçalves (Reuters
Photo: CGD headquarters
Edition: Prime Yield

Bank of Spain predicts economy to shrink up to 12.4% this year

Spain’s economy could shrink as much as 12.4% this year if its coronavirus lockdown lasts 12 weeks, before staging a vigorous recovery of at least 5.5% in 2021, the Bank of Spain said 

The Spanish central bank said the disruption suffered by the economy was, as in other countries, of «considerable severity», although there was still great uncertainty as it charted various scenarios depending on the length of the lockdown.

Its best-case scenario, based on the assumption that measures to prevent mass closure of businesses and lasting unemployment work out and the lockdown that began in mid-March lasts eight weeks, pointed to a 6.8% contraction.

The central bank said that tourism, which accounts for around 12% of Spain’s gross domestic product and 13.5% of all employment, would be particularly hard-hit by the pandemic.

«The high contribution of tourism to GDP and employment, in a context where these sectors are suffering disproportionately from the consequences of the pandemic, contributes to the fact that the prospects of the Spanish economy have been particularly affected,» it said.

If companies’ liquidity shortages turn into solvency problems in an eight-week lockdown, which the central bank saw as the most probable outcome, the Spanish economy could contract 9.5% this year, or 12.4% if the lockdown lasted 12 weeks.

In its worst-case scenario, it expected the unemployment rate to hit 21.7% this year, easing to 19.9% in 2021.

According to the International Monetary Fund, the euro zone economies should contract by 7.5% in 2020, forecasting an 8% contraction in Spain.

The Bank of Spain said that, in any case, an upturn was expected to begin in the second half of the year, leading to a «remarkable recovery» in 2021, with a projected growth of between 5.5% and 8.5%.

The central bank also predicted a budget deficit of between 7.2% and 11% of gross domestic product in 2020, improving to 5.2%-7.4% of GDP the following year. It said Spain’s debt-to-GDP ratio would rise to 122.3% in 2020 in the worst-case scenario.

Original Story: The Guardian| Jesus Aguado and Emma Pinedo (Reuters)| 
Photo: Photo by Xexo_Xeperti /FreeImages.com
Edition:
Prime Yield

Europe’s banks brace for bad debt build up from Covid-19 crisis

Europe’s banks are expected to have to set aside billions for potential loan losses as well as take profit hits because of the coronavirus crisis when they start reporting the 1st quarter results.

The region’s banks were already under pressure before the crisis with high costs, low returns, and demands to fix outdated technology. Mergers, which could potentially relieve those issues, have been difficult to pull off because of national barriers.

The largest U.S. banks, which already reported earnings by mid April, set aside $25 billion for credit losses in the first quarter, raising questions about whether European banks would follow suit.

Analysts over the past 30 days have revised upward by almost 130% their expectations for loan loss provisions in 2020 by Europe’s most important banks, according to a Reuters analysis of data from Refinitiv.

At the same time, analysts have cut by more than 40% their full-year profit forecasts for those banks, which include global banks like HSBC, BNP Paribas and Deutsche Bank, the data showed.

Regulators have said they will be lenient in enforcing accounting rules on expected loan losses, but there is pressure on European banks to be realistic about the looming downturn. Lower profitability than their Wall Street rivals will mean European banks have less room for manoeuvre.

«Those U.S. banks make huge amounts of money,» said Rob Smith, financial services partner at KPMG.

«European banks don’t have that luxury of revenue and income to absorb such significant increases» in loan loss provisions, he said. «That in turn that will dictate their approach

Though banks are not legally obliged to come up with the bulk of provisions now, «prudence is a recommendation that should be followed» given the current environment, a person with knowledge of the matter said.

The vulnerability of European banks to the outbreak was highlighted in April by the credit rating agency Fitch, which disclosed that it had taken 116 rating actions on Western European banks, mainly revising their outlook to negative.

The flood of European bank earnings will provide only a partial snapshot of how they are faring so far during the crisis, which began in earnest as the first quarter was well underway. Credit ratings agency S&P said management disclosures and comments would be «more revealing than the results themselves. »

Italian banks, which have worked hard to tackle the legacy of previous recessions, are expected to start raising provisions against loan losses in the first quarter as the economy heads for a contraction which the International Monetary Fund estimates could reach 9.1% this year, analysts say.

Italy’s banks have the highest exposure among European lenders to small- and medium-sized businesses, which are likely to suffer the most from a prolonged lockdown as the country battles with one of the world’s deadliest coronavirus outbreaks.

Morgan Stanley estimated the crisis risks saddling Italian banks with up to an additional €60 billion to €80 billion in impaired loans over the next two-to-three years, an up to 45% increase on the current stock.

Spain’s banks will also report an increase in provisions, said Nuria Alvarez, analyst at Madrid-based brokerage Renta 4.

Santander said earlier this month in a U.S. regulatory filing the pandemic may cause «us to experience higher credit losses» there.

Analysts said that a near standstill in Spain’s economy would first have a direct impact on the banks’ mortgage books, which account for around 40% of their credit portfolios, and on their consumer books, which make up for 8% of lending.

The Bank of Spain said that the country’s tourism- dependent economy could shrink as much as 12.4% this year if the coronavirus lockdown lasts 12 weeks.

At French banks, any higher loan loss provisions are expected to be «manageable», Jon Peace, an analyst at Credit Suisse, said.

Deutsche Bank is the only major European lender that analysts forecast to post a loss for the full year of 2020 as it goes through a costly restructuring. The crisis has made it difficult for the bank to predict whether it will meet its financial targets after years of losses.

Analysts doubled their expectations for Deutsche Bank’s first-quarter and full-year provisions for credit losses compared with early March, according to consensus forecasts published on the bank’s website.

Moody’s has highlighted that Deutsche Bank is among the global Europe-based investment banks that is most vulnerable to loan-loss charges.

Original Story: Reuters| Huw Jones, Valentina Za, Jesus Aguado, Maya Nikolaeva and Tom Sims
Photo: European Comission
Edition: Prime Yield

Covid-19’s recession will lead to an increase in NPL in Greece

The recession caused by the Covid-19 pandemic will lead to an increase in nonperforming loans (NPL) in Greece through the rise in unemployment, according to the Center for Planning and Economic Research (KEPE).

In its analysis titled “The Effects of Covid-19 on Greek Banks’ Nonperforming Loans,” KEPE explains that the blow from the economic slump will have a stronger effect on mortgage loans, as each percentage point that the gross domestic product falls will lead to a 3% increase in bad mortgages. The acceleration of the unemployment rate by 1% could also lead to a rise in bad loans ranging between 0.33% and 0.96% for corporate and consumer credit.

In any case the rise in unemployment is the main parameter that affects households’ ability to service their loans, so KEPE attributes great significance to the effort to contain the steep rise in bad loans, as well as the increase in state expenditure and the support of the real economy.

In Greece’s case, KEPE noted, that could mean a reduction in the primary budget surplus required for as long as is needed in order to support the economy under the extraordinary conditions comparable to post-war reconstruction. The relatively small impact of the public debt level on NPLs is an encouraging message to those responsible for drafting a more interventionary policy of support for households and corporations, according to KEPE. However, given that the support of incomes and GDP is the main factor affecting NPLs, the role of the fiscal balance should be assessed in combination with the expected favourable effect of public spending.

The financial health of banks, as reflected in the maintenance of strong capital adequacy, is for KEPE an important second line of defence to prevent new NPLs of all categories in the future, as it contributes toward safeguarding confidence in the credit system and in financial stability in general.

The KEPE analysts estimate that the negative impact on bad loans from a possible shift in property prices is expected but should be small, while increasing the incentives offered to banks for strengthening the economy’s funding will provide a small short-term support to the effort to reduce or contain the rise of bad loans.

Original Story: Ekathimerini |Evgenia Tzortzi 
Photo: Photo by Jonte Remos /FreeImages.com
Edition: Prime Yield

Top