NPL&REO News

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

Bradesco set aside R$2.7 billion for expected Covid-19 related loan losses

Banco Bradesco SA is setting aside R$ 2.7 bn ($506.1 million) for expected COVID 19-related loan losses and may provision more in the coming months amid what its chief executive called a more severe crisis than previous ones.

“Our goal was to preserve the bank’s solidity to face future challenges,” Octavio de Lazari told. “This crisis now is more severe than the ones Brazil faced in 2008 and 2016,” he added, referring to the financial crisis and a severe domestic recession triggered by a bust in commodities prices.

Bradesco posted recurring net income, which excludes one-off items, of R$3.753 bn, down nearly 40% from a year earlier and below a Refinitiv estimate of R$5.975 bn.

Return on equity, meanwhile, dropped 9 percentage points from the previous quarter to 11.7% as a result of the higher provisions.

Preferred shares in Brazil’s second largest private-sector lender were down almost 6% in mid-morning trading.

“We see the result as negative due to the faster-than-expected deterioration in asset quality indicators,” analysts at Credit Suisse said in a note to clients, adding that provisions are likely to keep an upward trend.

The bank’s loan-loss provisions soared 86% from a year earlier to R$6.708 bn in expectation of higher loan delinquencies by consumers and companies struggling with the economic effects of the pandemic. Now it has a buffer of R$5.1 bn to face an adverse economic scenario.

Lazari said Bradesco is likely to give clients another 60-day debt payment forgiveness extension. Earlier in March, the bank had already cleared the way for borrowers to postpone instalment payments for two months.

Along with increasing provisions, the bank is also trying to tackle the crisis through cost-cutting. Bradesco intends to shut 78 more branches than it had predicted in the beginning of the year, totalling 378 units.

The lender scrapped its 2020 results outlook because of coronavirus-related uncertainty, and Lazari said he could not predict when the economy might recover.

The COVID-19 outbreak had only minor impact in Brazil until mid-March, so its impact on first-quarter banking operations has been limited.

Bradesco’s loan book grew by 5.1% from December, mainly through corporate loans, as large companies looked to bolster balance sheets ahead of an expected deep recession.

Lazari said that since mid-March the bank had extended R$57 bn in new loans, but that demand for credit was now slowing down.

Fee income rose 2.6% from a year earlier, on checking account and brokerage fees.

Original Story: Reuters |Carolina Mandl 
Photo: Bradesco website
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

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