Portuguese banks’ NPL could reach 9% with end of moratoriums

Moody’s has a negative outlook on Portuguese banking. And it is concerned about the impact that the end of moratoria may have on asset quality. The rating agency anticipates an increase in non-performing loans this year and a fall in results due to the growth in provisions. And it warns that Novo Banco could be an additional burden.

“We have a negative outlook for the Portuguese banking sector, in line with several other European countries. What this negative outlook wants to reflect is the high uncertainty in the operating environment that could translate into weaker banking fundamentals,” explained Pepa Mori, vice president and senior credit officer for European banking at Moody’s, at a digital conference on Portugal organised by the agency on Wednesday.

“Our main concern regarding Portuguese banking is that the improvement in banks’ asset quality that took place in 2020 will suffer a sharp reversal as the government’s measures to support debtors – such as guaranteed credit lines or credit moratoria – start to disappear,” he warned.

Currently 22 per cent of financial institutions’ portfolios are under moratoria, a regime that is in force at least until September this year, with a further extension not ruled out. Only then will it be possible to see the impact of these measures on banking, but Moody’s estimates are that the non-performingloans (NPL) ratio will rise to 9% this year, from 5.5% at the end of last year.

In addition to the impact on asset quality, the worsening of non-performing loans will also force an increase in provisions to cover possible losses, which further reduces net income (already squeezed by the impact of the pandemic on financial margins).

On the one hand, Pepa Mori recalled that “Portuguese banks entered the crisis stronger than in the previous financial crisis”, which is “very important” in terms of capital and liquidity. “Portuguese banks compare positively with European ones,” he stresses.

Original Story: ECO | Leonor Mateus Ferreira
Photo: Photo by Ricardo Gurgel in
Edition & Translation: Prime Yield

Funds target the end of 2021 to reactivate large purchases of toxic assets

What comes in on the one hand, has to be ‘drained’ on the other. The expected increase in defaults in the coming months is forcing banks to reactivate the configuration of portfolios of new distressed loans created during the crisis. An operation that was practically paralyzed in the first half of 2020 and which the large funds do not expect to resume until the end of this year.

This is explained by various entities consulted by Invertia, protagonists in this type of operation, which have been making room for months to deal with the arrival of these new assets over the coming months. Experts rule out an avalanche as in the previous financial crisis but, without doubt, there will be foreclosures and executions that will swell these portfolios. And they will have to be disposed of as soon as possible.

“For the time being, we expect to see transactions involving the sale and purchase of assets such as mortgage debt in excess of hundreds of millions of euros, but this is a far cry from the billions that were seen in the past,” explain a national financial institution.

It seems logical. The mergers that will be completed during the course of this year will create larger portfolios from the last quarter onwards, which may be of greater interest to the large funds involved in these operations. This will also coincide in time with greater pressure on the banking sector in terms of non-performing loans.

Although banks rule out double-digit growth in NPLs, as the worst predictions suggested just a few months ago, it is necessary to prepare the exit of these new ‘toxic’ assets to avoid undoing the path taken in recent years, in which the cleaning up of the balance sheet has been key for the sector to reach this new crisis on a sound footing.

Especially after the last quarter in which a strong upturn in loans in the so-called ‘stage 2’ (under special surveillance) has been detected. “As a leading indicator of default, we expect that some of these credits end up appearing as bad debts,” warn Axesor Rating in a recent analysis.

They also point to the gross inflow of bad loans in some banks during the last quarter of the year. But this has not led to a deterioration in the average NPL ratio due, precisely, “to the sale of failed portfolios that has offset this effect or the greater increase in the denominator, i.e. loans versus doubtful assets”.

Original Story: Invertia (El Espanol) | Clara Alba
Photo:Photo by Xexo Xeperti from FreeImages
Edition & Translation: Prime Yield

Itau profits go 26% down on Q4 2020

Itau Unibanco Holding SA , Brazil’s largest bank, reported a 26% drop in fourth-quarter recurring net income from a year earlier, roughly in line with analysts’ estimates.

In a statement, Itau’s incoming CEO Milton Maluhy said the bank will seek to cut costs and accelerate growth to weather a challenging 2021, but it did not disclose a formal outlook for this year.

Itau’s recurring net income totaled 5.388 billion reais ($991.9 million), roughly in line with a consensus estimate of 5.440 billion reais compiled by Refinitiv.

The bank’s net interest income and provisions for bad loans remained under pressure, while fee income declined amid the pandemic.

Net interest income fell 9.5% year-over-year, mainly on a shift in its loan book towards less risky lines.

The bank’s cost of credit rose 3.8% from the same period a year earlier, to 6 billion reais, but the bank said it was due to a provision for one company.

Itau’s loan book grew by 2.7% in the quarter, mainly driven by consumers and small companies. Its 90-day default ratio remained roughly stable at 2.3%, but the bank saw more defaults among small and medium companies as forbearance ended.

On the cost side, Itau saw operating expenses up 5.1% in the quarter, on new hires and variable salaries.

Return on equity, a gauge of profitability, rose 0.4 percentage points from the third quarter to 16.1%. 

Original Story: Reuters | Carolina Mandl 
Photo: Itaú site
Edition: Prime Yield

Banks have €28.4 billion of loans on ice

Banks and servicers are in a race against time to reach settlement agreements over nonperforming loans (NPL) and suspended loan tranches in a bid to stem the impact of the pandemic crisis, according to Finance Ministry data. The data show that the loans on ice amounted to €28.4 billion at end-2020, while the debts on which a settlement deal had been reached with lenders and NPL management companies added up to €21.2 billion.

From March to December 2020, repayments of a total of 405,473 loans were suspended for up to nine months, a measure that ends on March.

From July 2019 to December 2020, settlement deals for 396,621 loans (mortgage, consumer and corporate) were reached with banks and servicers.In the context of the Gefyra program for the protection of borrowers’ main residences, the state subsidized the repayment tranches of 110,037 loans of 69,443 borrowers up to end-January, disbursing €47.9 million. Applications submitted up to the end-October deadline numbered 160,477, with 74,420 already approved by end-December.

Original Story: Ekathimerini | Evgenia Tzortzi 
Photo: Photo by Markellos P. from FreeImages
Edition: Prime Yield

Bradesco sees recovery in 2021

Brazil’s second largest private-sector lender Banco Bradesco SA forecasts a “year of recovery” after posting a forecast-beating quarterly profit, helped by higher net interest income and cost-cutting measures.

Bradesco reported fourth-quarter net income of 6.801 billion reais ($1.27 billion), above the 5.546 billion reais consensus estimate of analysts polled by Refinitiv, and up 2.3% from a year earlier.

Operating expenses fell 9.3% as the bank tightened its belt to weather the COVID-19 related slump, closing 1,083 branches.

“2021 will be another year of overcoming challenges, but it will be a year of recovery more than adversity,” CEO Octavio de Lazari said in a statement, forecasting growth in loans and declines in provisions.

In 2020, net interest income, a measure of earnings on loans minus deposit costs, jumped 8% year-over-year, mostly on trading gains.

The bank’s return on equity was a better-than-forecast 20%, maintaining a recent upward trend.

Loan-loss provisions rose 14.7% from a year earlier, to 4.568 billion reais. Still, the bank’s loan default ratio came in at 2.2%, down slightly from the third quarter.

Amid coronavirus-related quarantines, fee income dropped 1.3% year-over-year due to fewer card transactions and less visits to bank branches.

For 2021, Bradesco predicted its loan book will expand between 9% and 13%, compared with an increase of 10.3% last year.

It sees loan-loss provisions declining to between 14 billion reais and 17 billion reais, from 25 billion reais in 2020.

Fee income is also seen higher, growing at between 1% and 5%.

Even so, Bradesco will keep its cost cutting program in place and operating expenses are expected to fall by between 1 and 5% this year.

Original Story: Reuters |Carolina Mandl
Photo: Linked In Bradesco
Edition: Prime Yield

National Bank applies to join Hercules bad loan scheme

National Bank (NBG), one of Greece’s four largest lenders, has applied to take part in the government’s Hercules bad loan reduction scheme and securitise a € 6.1 billion portfolio of impaired loans, it said.

Banks in Greece have been working to reduce a pile of about €70 billion in bad loans, the legacy of a financial crisis that shrank the country’s economy by a quarter. Shedding the bad debt is crucial to their ability to lend and shore up profits.

The Hercules asset protection scheme (HAPS) was put in place to help banks offload up to €30 billion of bad loans.

Under Hercules, banks can apply for a government guarantee on the senior tranche of an NPL securitisation as long as that tranche is structured to a minimum Double B minus credit rating and they sell the majority of the mezzanine and junior notes.

NBG said applying to include its ‘Frontier’ bad loans portfolio in the Hercules scheme will fetch a Greek state guarantee for senior notes of up to €3.31 billion. The guarantee would give the senior notes a zero risk-weighting.

Original Story: Reuters/Ekathimerini
Photo: Photo by Michalis Famelis / Wikimedia Commons
Edition: Prime Yield

Spain’s largest banks piles €159 bilion credits at risk of default

Spain’s six larger banks (Santander, BBVA, CaixaBank, Sabadell, Bankia and Bankinter) accumulate €159 billion in loans and credit lines at risk of default, a pile that has risen by about 20% in the last quarter of the year alone and that is classified under special surveillance. 

This amount represents 8% of their portfolio and stands out as one of the key threats for the accounts of the next two years.

Although the banking sector isn’t yet recording an increase in insolvencies due to the health crisis, due to the moratoriums and the facilities of ICO financing, most of the sector experts consider that throughout 2021 the delinquencies will begin to escalate, especially in the sectors most affected by activity restrictions -tourism, leisure, restaurants and transport, mainly-, but also in consumption and, more residually, in the mortgage segment.

Amid the country’s banking industry, the most significant rise in nonperforming loans (NPL) is expected to occur until the end of 2022, although some bankers, such as CaixaBank CEO, considers that the peak will occur at the end of this year. Against this backdrop, most banks have been accumulating provisions to face these potential losses. However, in the second semester of 2020 their extraordinary provisions have decreased compared to the piggy bank make in the first half, due to the aim of offering better income statements and profitability, despite the slap on the wrist from the Bank of Spain due to the slowdown in endowments.

In total, they have reserved slightly more than €25 billion against the income statement between the extraordinary item for the pandemic and for the regular entry of insolvencies, which is more than double than in 2019. 

Original Story: El Economista |Fernando Tadeo 
Photo: Photo by Victor Iglesias from FreeImages
Translation & Edition:
 Prime Yield

BPI sells a €300 Mn NPL portfolio to LX Partners

Portuguese private bank BPI has just sold a nonperforming loans (NPL) portfolio to the LX Partners fund. The named “Project Lime” includes 30,000 credit contracts, with a gross book value of €300 million.

According to official sources from the bank, the deal was completed in January 27th , and comprises about 30,000 unsecured credit contracts, the same is saying that these loans have no collateral associated. 

Original Story: ECO |News
Photo: BPI Facebook
Translation & Edition: Prime Yield

Tikehau and Albatroz are about to complete the acquisition of Project ZIP

The joint venture between the funds Tikehau and Albatross is about to complete the acquisition of Project ZIP, agreeing to pay 320 million euros to take the portfolio comprising 4,400 houses owned by several Portuguese banks.

Funds Tikehau and Albatross left behind Cerberus, which was also part of the short list of candidates invited to present binding offers for the purchase of this portfolio, placed on sale in July. The two funds selected will now start the last negotiation stage for the conclusion of the operation, which should take place by the end of March.

According to sources close to the deal consulted by Eco, «the two funds offered a super-competitive bid. It is a great sign for the Portuguese market and for other potential sellers».

This Consortium should acquire Project Zip for an amount between 300 and 320 million euro, less than the 360 million euro the project was estimated at.

It should be recalled that this project includes 4.435 housing units, most of them already with tenants, located mainly in the urban centres of Porto, Lisbon and Setubal. The buildings are part of several real estate investment funds for housing rental (FIIAH) managed by Norfin and owned by several banks, amongst which Novo Banco, CGD, Montepio, Millennium bcp and Santander Totta.

90% of these buildings are rented. Projetec Zip currently generates 14.6 million euro in annual revenues, which could increase to 25.8 million euro, according to the same source.

Original Story: Iberian Property |Ana Tavares
Photo: Photo by Svilen Milev, in
Edition & Translation: Prime Yield