NPLs shrink €9,3 billion in one year

Portuguese banks have accelerated the pace in cleaning up Non-Performing Loans (NPLs) from their balance sheet in the 4th quarter 2017, when this indicator recorded the highest quarterly decrease ever. For total 2017, NPLs were reduced by € 9,3 billion.

“The stock of NPLs continued to decline in the fourth quarter of 2017. This decrease, of € 2,9 billion, is the largest quarterly reduction since the beginning of the publication of the European Banking Authority (EBA) series (in December 2015)”, notes the Statistical Bulletin of Banco de Portugal (Portugal Central Bank).

“The NPL’ stock reduced by € 9,3 billion compared to December 2016 and by €13,5 billion regarding the highest volume recorded in June 2016”, adds the document. Although the positive input from all sectors, the Portuguese Central Banks highlight the companies segment performance, recording a € 5,9 billion-decrease compared to December 2016.

“Thus, the NPLs ratio decreased 1.3 percentage points (p.p.) in the quarter, to 13.3%, which represents a 3.9 p.p. reduction with respect to the end of 2016 and of 4.6 p.p. compared to June 2016. As for the non-financial private sector, NPls ratio decreased 0.6 p.p. compared to September 2017”.

While the NPLs ratio falls, the coverage ratio for NPLs is increasing. “By December 2017, the coverage ratio of NPL for liabilities was 49.3%, increasing 2.8 p.p. compared to the previous quarter”. “The evolution was dued to an increase of 3.4 p.p. of the coverage ratio within the non-financial companies segment, states the Central Bank.

Original Story: ECO (Paulo Moutinho)
Photograph: Depositphotos
Translation and Edition: Prime Yield

Mergers and acquisitions in Portugal down 43% until March in a strong quarter for real estate

The market of mergers & acquisitions (M&A) lost momentum in Portugal during the 1st quarter of 2018, with y-o-y decreases of 19.1% and 43.3% in the number of transactions and in the negotiated amount, respectively.

According to the latest report from Transactional Track Record, released on April 4th, 3,1 billion euros were transacted in the M&A market during the first quarter of the year, reflecting a 43.3% y-o-y drop. There was also an 19.1% y-o-y downward in the number of transactions, which totalled 72 in Q1 2018 (89 in Q1 2017).

As the upward trend in real estate continued, the sector was the most active within this period with 15 transactions recorded, but, nevertheless, also representing an y-o-y 32% drop. Technology and internet were the areas that grew the most (133%), totalling 12 operations.

In the period under analysis, 31 inbound deals were recorded. Spain continued to be most active foreign buyer in number of deals, closing 10 operations for a total amount of € 156 million – 4 of which in the real estate sector, including the € 86 million investment from ORES Socimi into the acquisition of six retail assets in Portugal. France was also among the most active foreign buyers, with 7 transactions and investments amounting € 305 million, followed by Netherlands, with 2 deals that sum up € 450 million.

Looking into the total amount invested within the first three months, the top is headed by China with more than € 1.5 billion employed in the acquisition of Portuguese companies. «The deal of the quarter named by Transactional Track Record was the acquisition of Forum Montijo, Forum Sintra and Sintra Retail Park shopping centres by Immochan, in € 450 million investment», states the report.

Original Story: Jornal de Negócios
Photograph: Forum Montijo
Translation and Edition: Prime Yield

EU NPL initiatives spell confusion for banks

The European Central Bank (ECB) announced its own measures to prevent Europe’s banks from becoming embroiled in another non-perfoming loans (NPL) crisis, following the mid-March announcement of the European Commission (EC) of a plan to achieve the same goal, although by different means.

According to Euromoney, «these moves are part of an effort to appease some jurisdictions, most notably Germany, hesitating to agree to a pan-European depository insurance scheme (EDIS). The reluctance stems from the higher perceived risks in banking markets such as Greece, Cyprus and Italy, where the NPL problem has been most acute and progress has been relatively slow».

The EC’s proposal provides hope that full banking union could be completed by June this year, says EC vice-president Valdis Dombrovskis. EDIS is the final piece of that plan. The EC proposal seeks to introduce a minimum coverage ratio for NPLs through an amendment to the Capital Requirements Regulation, meaning that it will be binding for all banks in the Union. Loans originated after March 1 this year will be subject to a timeline of increasing provisions. Secured loans would need a coverage ratio of 5% in year one, increasing to 100% by year eight. Unsecured loans would need 35% coverage in year one; 100% by year two. Banks would do this either by deducting from their capital or writing them off via profit and loss provisions.

The ECB’s guidance, on the other hand, is non-binding and will be set on a case-by-case basis. It only applies to loans that become delinquent after April 1, regardless of origination date and it differs in its timeline for secured loans, which would need to be fully provisioned by year seven. Its incremental step ups are also different to the EC’s, with secured loans needing 40% provisioning after three years of being classified as non-performing.

The ECB noted that if it deems Pillar 1 requirements as insufficient for any given bank, it may implement Pillar 2 requirements.

How the two proposals (if the Commission’s is adopted) would interact is unclear.

Original Story: Euromoney (Graham Bippert)
Photograph: Depositphotos
Edition: Prime Yield