Banks sell 1.6 billion in NPL and real estate during the holidays

In the middle of the holiday period, Portuguese banks are closing big deals like ECS, for 850 million. Novobanco sold its headquarters for 112 million. BCP, BPI, Montepio and Parvalorem also have portfolios on the market.

August is synonymous with holidays, but not for Portuguese banks, which are taking advantage of the good market conditions to do €1.6 billion worth of deals with non-performing loans (NPL) and real estate portfolios, according to information obtained by ECO.

“Most banks don’t need to sell these portfolios, but are doing so to take advantage of the good moment in the market and are getting prices they couldn’t imagine getting,” explains Marco Freire, CEO of Portuguese company Whitestar, which manages more than 10 billion euros in NPL and REO.

Half of this amount relates to the sale of ECS restructuring funds that the banks have just closed with the Davidson Kempner fund, in what will be the “real estate deal of the year” in Portugal, for a value of around 850 million euros, according to Jornal Económico.

Novobanco has also just sold the historic BES headquarters, on Lisbon’s Avenida da Liberdade, for 112 million euros to Spanish company Merlin Properties. BPI has sold the “Citrus” portfolio valued at around 100 million to LX Partners, a market source told ECO.

Other ongoing deals include BCP (with the “Aurora” NPL and REO portfolio worth 80 million), Santander (with the “Guadiana” property portfolio worth 100 million) and Montepio (with the “Alqueva” NPL secured portfolio worth 130 million), while Parvalorem, the vehicle that manages the spoils of the former BPN, has just unveiled plans to put the Imofundos property fund worth 250 million back on the market.

All in all, that’s €1.622 billion in business that is not part of the banks’ core activity. 

At this stage, banks are putting smaller portfolios on the market, when they were used to seeing large portfolios in recent years. This is mainly a reflection of the huge effort to reduce non-performing loans in recent years, which left banks with a level of problem loans at lows at 3.6% at the end of March.

Yet banks still had around €11.9 billion in hard-to-collect loans on their balance sheets, which will already correspond to the most problematic cases that have not yet been resolved. They also have more than a billion in restructuring funds.

Moment of inflection in the market

Whitestar’s CEO admits that the market may be nearing a “moment of inflection and transformation”, given the high-inflation environment and rising interest rates by central banks.

“Until two or three months ago, the market was overcompetitive. Investors were looking for low levels of returns, given the level of product risk, and there was a lot of liquidity and capital available. From the moment we started to see a rise in inflation and interest rates, investors started to have alternatives,” explains Freire.

There are already signs of these changes. There are “more aggressive” investors that are “temporarily” leaving the market “to try to understand where things are going”, according to the head of Whitestar. The other issue is the price, insofar as there are divergent expectations in relation to the values banks are demanding for portfolios.

Even so, Portugal continues to register “a good binomial demand / supply in the market,” ensures Marco Freire.

Inflation could lead to an increase in NPLs

In relation to 2023, specialists anticipate the continuation of this trend, essentially appearing portfolios around 100 million euros. And although rising interest rates could leave many families struggling to pay off their home loans, with an impact on the increase in bank bad debt, the effect will not come about immediately, but in two or three years.

For Marco Freire, “the main question is to know how long this situation will last” of escalating inflation and rising interest rates. “If we continue with this level of inflation for a long time, NPL levels will rise considerably,” he says.

Original Story: ECO | Alberto Teixeira 
Photo: Novo Banco website
Edition & Translation: Prime Yield