Economy indebtedness increased by €1.6bn in November

Portugal’s economy indebtedness level worsened in final stage of 2018, increasing by €1.6 billion in November from the previous month, up to over €723 billion.

The worsening of public sector’s debt pile is one of the main reasons behind this upward movement, according to data released by Portugal Central Bank (BdP – Banco de Portugal).

This upward trend has been witnessed for five months now and seems to continue to worsen, with November recording the highest levels of indebtedness since April 2018, when this indicator stood at €724.5 billion.

Original Story: Eco News
Photo: Amerlynck
Translation and Edition: Prime Yield

Demand for credit is on the rise

Demand for credit, from corporations to households, has been on the rise over the last year, in a trend expected to continue this trimester, reveals the latest Portuguese Central Bank (BdP) banking system survey.

Even though access criteria for credit was nearly unchanged, by the end of 2018 «some banking institutions have noted that there was a slight increase in terms of demand for credit from small companies and big corporates, especially in terms of long-term loans», states the report. These banks have also admitted that they expect the increasing trend to continue being witnessed.

The BdP also adds that three of the financial institutions surveyed had registered a slight increase in their financing need.

Original story: Eco News 
Edition: Prime Yield

Banking sector has just moved to a new lending cycle

Analysts believe that the Brazilian banking sector has just moved to a new lending cycle.

Brazil’s central bank latest data (from November 2018) shows that origination for earmarked loans picked up sharply over the last year, reaching R$302 billion ($80.2 billion), the highest level since December 2015.

After two years of contraction in the loan book, 2018 was a year of inflection; with economic activity picking up in 2019, analysts expect this accelerating trend to continue.

UBS’s financial analyst Philip Finch believes the recent compression in NIMs will be alleviated during the year: «We expect the Selic rate to start increasing in mid 2019, reaching 8% by the end of the year, which together with better mix should offset competition pressure on NIMs. We currently forecast NIMs flat in 2019, on average, for the banks under our coverage

Consensus expectations are for system-wide credit growth of around 8% year on year, with volumes and a better mix (skewed towards SMEs and consumer growth) boosting profitability.

Better NPL ratios

Strong credit growth should also coincide with better asset quality – reductions in non-performing loans and lower provisions – which will drive the large Brazilian banks.

Marcelo Telles, analyst at Credit Suisse, says: «[90 day] delinquency ratios have declined substantially from its recent peak in mid-2016. Delinquency for individuals currently stands at the lowest level in 10 years, while corporate delinquency has declined to pre-crisis levels, though seemingly with plenty of room to improve, as it still stands substantially higher than historical levels».

Provision expenses should increase below loan growth, slightly lowering the cost of risk from 2.90% to 2.85%, below the previous annual low of 3.1% in 2014.

«We see upside risk to our [forecasts],» says Finch. «Most banks still have high levels of excess provisions, meaning that a better economic activity level can lead to clients’ ratings upgrades, translating into lower provisioning. Moreover, as sector loan mix has become considerably more defensive, with a greater portion of collateralized lending, we believe there is scope for [cost of risk] to fall to new lows, although how much lower could also depend on how quickly banks re-risk their loan books.»

Telles agrees: «We expect cost of risk to continue to improve in the next few quarters, driven mainly by Bradesco and Banco do Brasil. After gradually normalizing two years down the road, we assume the cost of risk will start to rise again, as credit growth, expected to pick up this year, should be led by high-yield segments

«In other words, we attribute the higher cost of risk to changes in the portfolio mix, not to any deterioration in delinquency levels on a product-by-product basis, thus not necessarily affecting risk-adjusted returns

Original story:Euromoney |  Rob Dwyer
Photo: Krings
Edition: Prime Yield

Portuguese banks are cleaning up balance sheets at a faster pace, says Moody’s

According to Moody’s latest report, released on Tuesday 23rdJanuary, the Portuguese banks are cleaning up their balance sheets at a faster pace, but also warned that the country   has a yet a poor performance compared to the European Union average.

Last year, non-performing loans (NPL) in the Portuguese financial system dropped markedly due to sound economic conditions, an increase in loans written off and the removal of assets from balance sheets, explained Moody’s president Pepa Mori.

The rating agency added that the fall accelerated in the fourth quarter, with some major banks selling high volumes of non-performing loans. It is the case of Novo Banco, which is putting for sale another more € 1 billion in NPL.

As of September 30, the Portuguese NPL ratio, which measures the weight of NPL in the total credit granted, stood at 12%, showing a drop of 3.2 p.p. from the 15.2% recorded in December 2017. Since its peak of June 2016 (20.1%), the country’s NPL stock has reduced by 25%.

Even though this positive evolution in cleaning up the balance sheets, Moody’s warns that the Portuguese banks’ NPL ratio is «still very poor when compared to the European Union average», which stood at 3.4% in September.

The rating agency points out that the main problem in the Portuguese banks bad debt relies in the credit granted to companies (22.1% ratio), while the problematic real estate assets continue to represent a constraint on the quality of banks’ assets.

Moody’s analysts expect the Portuguese economy to grow 1.7% this year and said they hoped the NPL stock would fall even further in 2019, since most banks had committed publicly to keep reducing them.

Original Story: Jornal de Negócios | Nuno Carregueiro
Edition and Translation:Prime Yield

IFIS NPL acquires €1.16 bn NPL portfolio from Monte dei Paschi di Siena

IFIS NPL, the company owned by Banca IFIS Group dedicated to the acquisition, managing and transformation of non-performing loans (NPL), bought from Monte dei Paschi di Siena, a NPL portfolio with gross book value of €1.16 billion.

The portfolio acquired includes over 83,000 debtors. Ca. 16%, equal to €192 million gross book value, is represented by consumer loans. The remaining 84%, ca. € 967 million gross book value, consisted of unsecured small ticket banking NPLs.

In a note, Banca IFIS confirms its dynamic strategy in purchasing and managing NPLs.

After buying in the third quarter eight portfolios with a gross book value of ca. €1.83 billion, in the fourth quarter of 2018 the Bank purchased, in addition to the above mentioned MPS’s transaction, other four portfolios with a total gross book value of €93 million and ca. 30,000 positions. In 2018, total purchases amounted to €3.6 billion gross book value, in line with company targets.

As a result of these transactions, IFIS NPL’s portfolio amounts today at €15.7 billion (gross book value) with over 1.6 million positions.

Original story: Globe News Wire | PR
Photo: IFIS Finance
Edition: Prime Yield

Brazil’s banks outperformance expected to 2019

Multiple positive factors point to outperformance of Brazil’s banks in 2019, but pensions reform risks remain.

UBS’s financial analyst Philip Finch believes that a potent mix of stronger than-expected-loan growth, improving net interest margins (as the country’s base rate, Selic, rises), a falling cost of risk (if pensions reform is passed) and improved efficiency ratios from branch rationalization will improve the profitability of Brazil’s leading banks.

Floating all these specific boats is the cyclical recovery of the Brazilian economy that should come this year. These strong numbers are based on expected growth of 3% (rebounding from a small recovery of 1.5% in 2018 and 0.5% in 2017 and a deep recession between 2014 and 2016).

As Finch notes, pensions reform is the key variable. All of the projections of 3%-plus growth are based upon the new administration of president Jair Bolsonaro being able to pass meaningful reform – and there have been encouraging noises that the new administration is making this social security reform a priority.

However, William Jackson, Capital Economics’ chief emerging markets economist, highlights the downside risks to this assumption: «The latest noises don’t mean pension reform is guaranteed. For one thing, it’s not clear that Bolsonaro himself is as committed to the reform as his economic team – it seems he has yet to sign off on the higher retirement ages being suggested and the shorter transition phase».

The politics are also obtuse: the plan will be politically unpopular and Jackson points out that it isn’t clear if the appetite exists within congress to push through unpopular and painful changes to the pension system.

Pensions notwithstanding, other banks are more bullish on this year’s macro-economic scenario: Bank of America Merrill Lynch forecasts growth of 3.5% in 2019 – above the 2.6% consensus – driven by «higher confidence indices and lower market rates, in our view, which should lead to a decline in unemployment rate and an improvement in credit market conditions, favouring especially private consumption and investment

Finch expects an average of 17.6% earnings growth for the large Brazilian banks in 2019, with return on equity improving 147 basis points to 19.5%.

Original story:Euromoney | Rob Dwyer Neves
Edition:Prime Yield

Eurozone banks expect slower borrowing in the first quarter

The credit demand in the Eurozone should ease in the first quarter, as factors braking the single currency area loom larger, says the latest European Central Bank (ECB) bank survey.

«Net demand continued to increase across all loan categories in the fourth quarter of 2018, but banks expect some moderation in demand over the next three months», the ECB said in a statement.

Over the fourth quarter of 2018, low interest rates encouraged both firms and households to borrow, with businesses using cash for investment and mergers and acquisitions, while a rising housing market spurred individuals to seek mortgages.

During the first quarter of 2019, firms’ and households’ demand for loans should be higher, but banks expect some moderation in demand, forecasts the same report.

Banks’ non-performing loans have tightening impact on credit standards

With regard to the impact of non-performing loans (NPLs) on banks’ lending policies, the report shows that euro area banks’ NPL ratios had a tightening impact on their credit standards for loans to enterprises and housing loans over the past six months.

Looking forward, over the next six months, they expect a net tightening impact of their NPL ratios on credit standards across all loan categories. Banks’ NPL ratios affected their lending policies over the past six months mainly through their impact on access to market financing.

Original story: The Express Tribune | AFP
Edition: Prime Yield

Portuguese housing prices up again

Housing prices went up once again in Portugal during the third quarter of 2018, growing by almost twice as much on the year earlier, as in the euro area and European Union as a whole, according to the latest figures released by the EU’s statistical bureau, Eurostat.

In Portugal, prices for residential property were up 8.5% in the quarter over the same period of 2017, while in both the euro area and the EU the year-on-year increase was 4.3%.

As against the second quarter, housing prices in the euro area in the third quarter were up 1.6% and in the EU by 1.5%. In Portugal they were up 1.0%.

According to Eurostat, the biggest year-on-year increases in the third quarter were in Slovenia (15.1%), the Netherlands (10.2%) and Ireland (9.1%). Just Sweden (-2.1%) and Italy (-0.8%) saw prices drop.

Original Story: The Portugal News | TPN/LUSA
Photo: Miguel Saavedra
Edition:Prime Yield

Montepio Geral sells a €239 Mn NPL portfólio

Portuguese bank Caixa Económica Montepio Geral (CEMG) signed a public deed for the sale of a non-performing loans (NPL) portfolio with a gross amount value of €239 million, in the form of a direct sale, to Mimulus Finance Dac, a company incorporated under the laws of Ireland, established in Dublin.

Signed on 27 December 2018, and following a competitive sale process, this agreement compromises a portfolio that includes approximately 10,000 contracts. In the not sent CMVM, the Portuguese Securities Market Commission, the banks explain that «the completion of this operation materializes Caixa Económica Montepio Geral’s strategy for the continuous reduction of non-performing assets».

Original Story:Jornal de Negócios | Diogo Cavaleiro
Photo: Montepio
Translation and Edition:Prime Yield

National Bank of Greece ready to sell-off €3 bn NPL portfolio

The National Bank of Greece (NBG) is ready to sell-off roughly €3 bn worth of non-performing loans (NPL), from which about €2 bn correspond to loans granted to companies and the other €1 bn to consumer loans.

The first tranche, known in the local market as the “Symbol Project”, includes collateral of approximately 5,000 commercial properties.

NBG is expected to hold an “investment day” in London in March, where, among others, it will announce new targets for reduction of NPLs and NPEs, along with the sale of subsidiaries, efforts to reduce operating costs and what the oldest Greek commercial bank calls its presence in the post-bailout period.

Original Story:Naftemporiki
Photo: National Bank of Greece
Edition: Prime Yield

Brazil’s new finance minister faces difficult economic challenges

Brazil’s newly appointed Finance Minister, Paulo Guedes, faces a daunting challenge: to bring Latin’s America’s biggest economy back to full health, following the worst recession in the country’s history.

Making matters more difficult, Guedes will have very limited time to implement urgent fiscal and structural reforms to avoid a new crisis.

For now, the country’s economy is evolving positively: GDP grew at an annualized rate of 1.4% in the third quarter if 2018, at the fastest pace in 18 months. Investment rose 1.6%, marking the first positive reading in four years. Although positive, it seems a fragile recovery as we look at the 13 million unemployed workers, a staggering fiscal deficit and a massive debt-to-GDP ratio.

Guedes, who will also be in charge of planning and development, has been dubbed by the Brazilian press a “super minister.” A former pupil of Milton Friedman at the University of Chicago, he argues for smaller government and privatization.

«As a ‘Chicago Boy,’ Guedes would like to privatize everything,» says Alfredo Saad-Filho, professor of political economy at SOAS University of London. «However, his ambitions have already fallen victim to the conflicts between the president and other players close to the administration, to the extent that Bolsonaro has already intervened repeatedly to contain Guedes.» It now appears that while utility companies Petrobras and Eletrobras will be privatized, lenders like Banco do Brasil and Caixa Economica Federal will remain state-owned, Saad-Filho notes.

Another challenge is restructuring the country’s pension system. «The sooner the better,» Guedes has stated to the press. The current structure—which disproportionately benefits public servants, who can retire in their mid-50s—costs 12% of GDP.

While Guedes economic views are fairly clear, it remains to be seen where Bolsonaro and a divided and unpredictable Congress land. As some observers have already pointed out, the country’s fate is in the hands of an economist who is getting his first taste of public service—and new lawmakers who don’t know much about the economy. «A very public conflict is mounting,» says Saad-Filho, «and it started when the administration was not even in power yet

Original story: Global Finance |  Luca Ventura 
Photo: Valter Campanato/Agência Brasil
Edition: Prime Yield

European banks improve their resilience while profitability remains weak

The European Banking Authority (EBA) has just published its Risk Dashboard, which confirms improvements in both asset quality and capital ratios in the EU banking sector in the third quarter (Q3) of 2018, while profitability remained subdued.

Together with the Risk Dashboard, which summarizes the main risks and vulnerabilities in the EU banking sector using quantitative risk indicators, the EBA published the results of its Risk Assessment Questionnaire, which includes the opinions of banks and market analysts on the risk outlook collected in autumn 2018.

The document shows that European Banks’ capital ratios remain high with a modest increase since Q2 2018. The CET1 ratio on a transitional basis increased from 14.5% in the last quarter to 14.7% in Q3 2018 as the result of both an increase in CET1 capital and a decrease in total risk exposures. Banks representing 99.6% of total assets have a CET1 ratio above 11%. The fully loaded CET1 ratio increased to 14.5% in Q3 2018.

Good news for the quality of the EU banks’ loan portfolio, which has improved further. In Q3 2018, the ratio of non-performing loans (NPLs) to total loans kept the downward trend and stood at 3.4%, its lowest level since the NPL definition was harmonized across European countries in 2014.

This declining trend of the NPL ratio is due to the growth of total loans as well as due to the continuous decline of NPL, which now stand at €714.3 bn. Looking forward, banks expect further improvement in the quality of their portfolios, while market analysts seem to be more cautious on the asset quality outlook. Profitability in the EU banking sector needs to improve further.

The average return on equity (RoE) has been stable at 7.2%, with the share of banks with RoE above 6% decreasing from 67.1% in Q2 to 62.8%.

The answers to the Risk Assessment Questionnaire show that banks expect profitability to remain subdued, with only about 30% with a positive outlook in the next 6-12 months. In order to improve profitability, banks target increasing fees and commission income and decreasing operating expenses.  The loan to deposit ratio has remained broadly stable.

In Q3 2018, the ratio increased marginally by 10bps to 118.4%, driven by a growing numerator as well as denominator. The leverage ratio (fully phased-in) remained stable at 5.1%. Asset encumbrance ratio increased slightly to 28.2% from 28% in Q2 2018. The liquidity coverage ratio (LCR) improved to 148.5% in Q3 2018, the highest value since Q3 2016 and well above the 100% requirement.

The figures included in the Risk Dashboard are based on a sample of 150 banks, covering more than 80% of the EU banking sector (by total assets), at the highest level of consolidation, while country aggregates may also include large subsidiaries.

Original Story: EUReporter | EUReporter Correspondent Szymon
Edition:Prime Yield

«The expectations are now very high in Brazil»

Brazil’s Outgoing central bank President told Swiss newspaper Le Temps that conditions remain in place for strong economic growth, while he warned against inflated expectations under the country’s new populist government.

In an interview quoted by Bloomberg, Ilan Goldfajn told that «the expectations are now very high in Brazil». The responsible, who is to be replaced as central bank president by Roberto Campos Neto, said the same source that to keep inflation in check Brazil must continue with economic reforms under the new government of Jair Bolsonaro.

«The idea is to continue the reforms and increase the flexibility of the economy», he said. «If the new government comes to put the accounts in order, the economy will gain in productivity».

Goldfajn also said Brazil’s inflation is under control and can remain so in coming years, with interest rates at a low level to stimulate the economy. He expects economic growth of 2.5% in March.

Original Story:Bloomberg |Andy Hoffman
Photo:  Arquivo/Marcelo Camargo/Agência Brasil
Edition: Prime Yield

European NPL Sales reach a €205.2 bn peak in 2018

The European non-performing loan (NPL) market reached a new peak in 2018, with disposals totalling €205.2 bn in gross book value (GBV), according to the new European NPL FY report from Debtwire ABS.

Debtwire’s report tracked 142 transactions, recording a particularly intense pace of activity in the last quarter, given that at the end of 3Q18, closed deals totalled € 125bn.

Italy was the most active country in 2018, producing half of the total NPL sales. Debtwire identified 64 closed NPL sales with a GBV of € 103.6bn, almost half of which were via securitisations within the government’s Garanzia sulla Cartolarizzazione delle Sofferenze (GACS) scheme, which runs only until 6 March 2019.

At the same time, sales started to slow down in Spain as large Spanish banks near end of their balance sheet clean-ups.However, a massive € 43.2bn was completed in 2018 across 27 deals and most of these have involved two jumbo buyers, Cerberus Capital Management and Lone Star Funds.

Other significant trend is that the sales are starting to accelerate in other Southern European countries, still the ones with the highest NPL ratios, and market participants expect to see more in 2019. In 2018, Greek banks closed eight sales for a total volume of €13.9bn, Portuguese banks closed 16 NPL and REO deals for a total volume of €8bn and Cyprus saw two deals for €2.9 bn.

In Ireland, there were eight deals for EUR 14.3bn, while in the United Kingdom the bad bank UKAR dominated the loan disposal market with £5.8bn of sales out of a total £6.5bn. Germany has also seen disposal of NPLs connected with troubled local banks. HSH Nordbank’s € 6.3bn portfolio, sold together with the bank to Cerberus, made up most of the €7.7bn volume in the country.

«The NPL market has reached a peak that will not be topped in 2019. This is especially the case in Italy, where the GACS effect will slow down, with most large banks having already taken advantage of the program and now needing to focus on unlikely to pay (UTP) portfolios. Still, with European regulators pushing for banks to dispose of their bad loans quickly, activity will remain consistently intense across the continent» said Alessia Pirolo, Head of NPL Coverage, Debtwire.

Original Story: Property EU| Jane Roberts
Edition:Prime Yield

More NPL portfolios go up for sale in Greece

National, Piraeus, Alpha and Eurobank, Greece’s four systemic banks, want to speed up the sale of NPL portfolios in 2019. So far, between them, these banks have sold bad loans with a gross book value (GBV) of €9bn. A value that should be largely surpassed in 2019.

National and Piraeus will be the first to make new sales in 2019, conceding four new portfoliosadding up to €3 bn.

Alpha leads the pack in loan sales, having already completed the concession of four portfolios with a total nominal value of €3.5 bn. National has sold a major portfolio of €2 bn, Piraeus two portfolios totaling €1.8 bn and Eurobank another two packages worth €1.6 bn.

Now National will concede NPLs from small and medium-sized enterprises totaling €1.6 bn in the portfolio “Symbol,” as well as a package of consumer loans – without collateral – worth €700 Mn. Both sales are expected to be completed within the first half of the year.

Piraeus will also put up for grabs a package of consumer loans without collateral with a nominal value of €400 Mn, named “Iris,” along with a portfolio of a similar size containing shipping loans and named “Nemo.”

Interest from international investors appears to be strong, as reflected by the prices achieved during previous sales and by the entry of strong players in the Greek market.

Original Story: Ekathimerini | Evgenia Tzortzi
Photo: Kolokotronis
Edition: Prime Yield

Global economic growth should slow down in 2019, according to UBS

Global economic growth is expected to slow down in 2019, according to UBS, as tighter monetary policy, weaker earnings growth and political challenges confront the world’s major economies.

After seeing a growth of 3.8% in 2018, UBS said in its outlook for the year ahead that it expected global economic growth to slow to 3.6% in 2019.

«The decline in global growth will mean a weaker tailwind for global markets, which could begin to anticipate an end of the economic cycle as 2019 progresses,» the investment bank said in a note.

In the meantime, solid domestic demand in the euro zone will not be sufficient to offset reduced export growth, UBS’s economists said.

On the bright side, UBS said a recession looks unlikely given current rates of consumption, investment and employment growth «and we think the typical causes of a downturn are unlikely to materialize in 2019

«Our base case is for inflation to stay contained, allowing central bankers to remain sensitive to growth. We don’t foresee a major fiscal policy shift or a commodity price shock. Consumer balance sheets are in solid shape and improvements in banking sector capitalization since the financial crisis reduce the risk of a global credit crunch

It also noted that there are growth opportunities and pockets of value.

Tighter monetary policy

Among the biggest challenges facing the world’s largest economies is a new era of tighter monetary policy following a decade of stimulus after the financial crisis of 2008.

Central banks in the U.S., U.K., euro zone, Japan and elsewhere introduced a mixture of low interest rates and expansionary monetary stimulus programs, known as “quantitative easing” (QE) — essentially large-scale asset purchases — in a bid to boost spending in the economy.

While these tools were useful in re-establishing stability in global financial systems, central banks are keen to “normalize” such policies.

The U.S. has already stopped its QE program and hiked interest rates four times in 2018 while the European Central Bank confirmed in December that QE would end at the end of the month, with bond purchases falling from €15 bn ($17 bn) a month to zero. Amid ongoing Brexit uncertainty, meanwhile, the Bank of England has yet to say when its own QE program will end, although interest rates have been raised slightly.

UBS noted that the coming year will represent the first time since the global financial crisis when central bank balance sheets are on track to end the year smaller than they were at the start of it.

Original story: CNBC | Holly Ellyatt
Photo: Klimkin
Edition: Prime Yield

Axactor acquires large unsecured NPL portfolio in Spain

Axactor has closed its biggest one-off transaction in 2018, with a large Spanish financial institution. The purchase is an unsecured portfolio with an outstanding balance of approximately €940 Mn across more than 100.000 claims. The portfolio comes with a significant number of paying cases, increasing the existing revenue from unsecured portfolios by more than 40% in 2019.

«Complementing recent announcements in Germany, Italy, Sweden and Finland this portfolio shows real commitment by Axactor in growth and diversification across both continental Europe and the Nordics. Combining this with existing forward flow commitments, Axactor is well placed for significant growth into 2019 and beyond» says Endre Rangnes, CEO, Axactor Group, in a press release.

«Axactor Spain is delighted to have secured this large portfolio in the last quarter of 2018. It provides us with momentum into 2019 across the whole business. It will complement our wins in the other product areas, 3PC, Secured and REO» says David Martín and Andrés López, General Directors of Axactor Spain.

Axactor plans to make this acquisition through their jointly owned SPV with Geveran and will finance the transaction using existing cash and credit facilities.

Original story: Property Magazine International
Photo: Axactor Spain
Edition: Prime Yield

Novo Banco closes the sale of €2.1 Bn NPL “Project Nata”

Portugal’s Novo Banco, created from the collapse of former Banco Espirito Santo, has successfully offloaded a portfolio of non-performing loans (NPL) worth a total of €2.1Bn. Known as “Project Nata”, the portfolio containing 102,000 contracts has been purchased by the investment funds KKR and Lx Investment Partners.

The process is expected to be completed in the first half of 2019 states the bank in a note to the stock market commission CMVM. “Novo Banco informs that after the completion of a competitive sale process, Novo Banco and Best have signed a purchase and sale contract for Non-Performing Loans (NPL’s) and related assets (Project Nata) to a consortium of funds managed by KKR and LX Investment Partners”.

The sale, originally announced in mid-December, is the largest sale of Non-Performing Loans ever in Portugal.

However, the actual value of the portfolio is greater than the €1.7Bn initially estimated, in other words an additional €400 million.

Taking into account the value published by Novo Banco, the amount of loan defaults on the bank’s books should fall to around €6.3Bn from the €6.7Bn it has been before the sale of this tranche of debt.

In addition to Project “Nata”, the bank led by António Ramalho is now preparing to sell a second credit default portfolio Project ‘Albatros’ in Spain. This is a collection of NPLs with an estimated value of €400 million in an operation that should be completed by the end of the year.

Novo Banco also has sold a portfolio of 9,000 properties to the US fund Anchorage Capital Group for €716 million with the management of the portfolio handed to the servicing group Finsolutia and Hipoges.

Original story: Essential Business
Photo: Novo Banco
Edition: Prime Yield

Santander’s Brazil is driving growth with car loans

Banco Santander grabbed 25% of the market for car loans in Latin America’s largest country, Brazil, in part by extending credit to borrowers shunned by other mainstream banks. As Reuters explained, that means financing working-class customers in need of cheap motorcycles and cars up to two decades old.

According to the same article, that business line helped power Madrid-based Santander through Brazil’s recent recession, even as domestic rivals Itau Unibanco Holding SA and Banco Bradesco SA hit the brakes, and other foreign banks such as London-based HSBC Plc and U.S. Citigroup sold their struggling Brazilian retail businesses.

Despite the risks of the high rates of default in this specific consumer credit niches, the fact is Santander is cruising in Brazil, where is the third-largest private sector bank. Its 90-day default ratio is the lowest among Brazil’s largest private banks, at 2.9% in September.

Year-over-year consumer loan growth in Brazil hit 22.6% in September, more than triple the industry average of 7%. Brazil unit profitability, which for years has lagged peers, jumped to 19.4% from 16.3% in the same period. That beat Bradesco, the country’s second largest private lender, and narrowed the gap with industry-leading Itau.

Santander’s increasing reliance on Brazil shows how emerging markets can still provide a jolt of growth. The Brazilian unit contributed 26% of group profits in the first nine months of 2018, up from 19% four years ago. Santander Brasil’s stock price has surged more than two thirds in the last 12 months, vastly outperforming the shares of its parent company, as well as those of Itau and Bradesco.

Still, Santander Brazil’s outsized auto loan portfolio, and its willingness to bet on borrowers and vehicles avoided by competitors, could presage a bumpier road ahead in a country with a history of economic volatility.

«Certainly, Santander’s growth strategy is a success story so far,» said Andre Martins, an analyst at XP Investimentos, to Reuters. «But the bank will be the one most exposed to defaults if the Brazilian economy turns down.»

Around 80% of the Brazil unit’s auto loans are on cars aged four years or less, and down payments are hefty, averaging 36%. «If Santander’s loan book were problematic, it would already have popped after a 3-year historic recession,» said Angel Santodomingo, chief financial officer for Santander Brasil. «Our success in credit quality is related to our ability to analyze and price individuals’ risk

Big data at the service of consumer credit

The bank is harnessing big data to glean information beyond borrower income and savings. And Brazil risk officers are using company tools that have proven successful elsewhere, including the United States, where Santander is a major subprime auto lender.

The bank has also embraced the internet to grow its business, leveraging online sales generated through WebMotors, a top car-selling website that it owns. Two years ago it launched an app that allows dealers to arrange car loans within minutes for buyers who provide eight pieces of information, an innovation that is now being copied by other Brazilian banks. That process had previously taken at least a day and required car buyers to provide reams of documentation. If a loan is approved, clients sign the contract digitally.

Santander plans to use that model to grow its consumer finance business in Brazil with loans for vacations, building materials and solar panels, according to Andre Novaes, head of Santander’s consumer finance unit. Many Brazilian banks have avoided such lending because of the high default risk and shaky collateral.

To safeguard its portfolio, Santander said it has encouraged highly-indebted clients to refinance and consolidate different types of loans in arrears into a single loan with more amicable terms.

Some bankers, however, view the practice as a way to mask Santander’s default ratio. We must remember that severe losses in 2011 forced Itau and Bradesco to stop financing low-end motorcycles, and to ban cars aged ten years and older from their portfolios. They also increased down payments and shortened loan maturities, which had stretched as long as 70 months.

Original Story: Reuters | Carolina Mandl
Photo: Santander
Edition: Prime Yield

Bradesco is back on track

With its focus on SME’s, Brazilian Bradesco banc is well set to grow with the country’s economy, according to Euromoney.

Third-quarter 2018 results back up this optimism. The bank’s earnings grew 6% during the quarter and 14% year on year, which was the strongest bottom line expansion among the large banks.

Following the announcement of the results, Bradesco’s president, Octavio de Lazari, predicted further growth next year. «We have the appetite to continue to grow our credit portfolio and to grow a lot,» he said – though he declined to give any specific forecasts for either credit or earnings growth in 2019.

Perhaps more importantly, the bank also had the best net interest margin versus non-performing loan performance ratio in the market, with core net interest income increasing by 4% while NPLs (90 days) fell by 30 basis points. In the bank’s critical small and medium-sized enterprise segment (to which it has a larger exposure than its competitors), it managed to cut NPLs by an impressive 74bp in the quarter – with corporate NPLs stubborn due to three specific large defaults.

The performance in SMEs is encouraging for the bank. The loan portfolio to this sector increased by 3.6% in the quarter (corporates by just 0.4% and the individual’s segment by 1.8% quarter on quarter).

Bradesco’s overall loan portfolio is tilted more to the higher-returning segments than its competitors, which leads analysts to argue that it is best positioned to grow with the Brazilian economy.

BTG Pactual bank analyst, Eduardo Rosman, hailed the third quarter results as showing that the turnaround, “something investors have been waiting for some time”, has arrived.

«The big improvement in NPLs and particularly the better dynamics seen in the SME business line make us more positive on the prospects for the bank,» Rosman wrote in his third-quarter results report to clients. «In a scenario where Brazil’s GDP recovers, we tend to believe Bradesco’s ROE has room to expand and reduce the gap to its main competitor Itaú. It could also get back the number two ROE position recently lost to Santander

Bradesco’s ROE was 19.1% in the third quarter and Carlos Firetti, market relations director at Bradesco, thinks this level will more likely be a new floor rather than a peak. «We believe we have reached a new level of ROEs and we still focus for expanding,» he says. «We believe that the economy, the improvement in the economy, the opportunities that will arise from it, with more loan growth, and also the maturity of many of our initiatives, will allow us to actually look for higher profitability levels

Original Story: Euromoney
Photo: Bradesco
Edition: Prime Yield