NPL&REO News

Portugal approves 30% cut in mortgage rates for struggling borrowers

27 September, 2023

Portugal’s government said that banks must discount the benchmark six-month Euribor rate by 30% when calculating mortgage interest rates if asked to do so by borrowers struggling to deal with rising interest rates and avoid default.

Around 90% of Portugal’s stock of 1.4 million mortgages have variable rates indexed to euro interbank offered rates (Euribor), one of the highest levels in the euro zone. But interbank rates have soared as the European Central Bank hiked interest rates from record lows.

As a result of this measure, the implied interest rate on mortgages cannot exceed 70% of the six-month Euribor rate in the next two years,” Finance Minister Fernando Medina told a news briefing.

Those with mortgages indexed to three- and 12-month Euribor rates will also receive a discount equal to the nominal amount resulting from the cut in the six-month rate, he added.

Banks will be able to start recovering unpaid interest from those that requested the reduction after four years by redistributing the payments until the mortgages mature.

Medina said the new measure and the interest subsidy that the state already guarantees to the most indebted families should help around one million families.

“The abrupt rise in mortgage payments is undoubtedly the most serious problem that Portuguese families face today, in addition to the impact of inflation, and we want to give them stability for two years,” he said.

Bank of Portugal Governor Mario Centeno has recently estimated that at the end of 2023 the mortgage expenses of around 70,000 families could exceed 50% of their net income.

Medina said the new measure, which helps banks to avoid non-performing loans (NPL), was agreed with the Association of Portuguese Banks APB and the central bank.Portuguese banks suffered a spike in bad loans after the economic and debt crisis in 2010-13, but have since reduced the share of NPLs to 3.1% of total credit from a peak of 17.9% in mid-2016.

Original Story: Reuters | Sérgio Gonçalves
Photo:Photo by Svilen Milev on FreeImages
Edition: Prime Yield

Corporate debt reaches a new record high: demand now exceeds €50 billion

25 September, 2023

Corporate credit demand has broken the downward trend seen in the last two months and, in June -the latest data available-, the granting of commercial loans exceeded €50 billion, as detailed in the latest report on nonperforming loans (NPL) and credit from the Bank of Spain. The latest metrics published by the national supervisor show that companies continue to increase their indebtedness in order to obtain capital to be able to manoeuvre and undertake new operations.

Despite the fact that the Spanish economy, like the rest of the European economies, is in a period of monetary tightening, companies continue to demand loans to stay the course and meet operations. It is worth noting that so far this year, the European Central Bank has raised interest rates five times in a row.

Commercial loans granted exceed €51.7 billion

As detailed in the latest report on delinquency and credit published by the Bank of Spain, the demand for commercial loans grew by more than 4.5% in June compared to January. Thus, the volume of loans granted amounted to €51.746 b. Banks closed the first half of the year with a growing demand for credit from companies and for consumer loans.

In fact, the volume of consumer credit, in addition to breaking the downward trend seen in April and May, is the highest so far this year. Although banks have tightened lending conditions due to interest rate hikes, commercial credit continues to grow and, up to June, the capital loaned exceeded €51.7 billion.

While it is true that commercial loans have somewhat looser conditions than the rest of the assets, the interest rate hikes have been applied to all loans in the same way, which means that they have also become more expensive. Even so, the volume of capital lent grew by more than €4 billion month-on-month in June.

Original Story: Economia Digital |Alejandro Montoro
Photo: Photo by Jason Hochman from FreeImages
Edition and translation: Prime Yield

Fitch upgrades Greece’s four systemic banks ratings

25 September, 2023

Fitch Ratings has just upgraded Greece’s four systemic banks ratings, following a recent round of upgrades of Greece’s credit rating.

More specifically, Fitch Ratings upgraded Eurobank SA’s Long-Term Issuer Default Ratings (IDRs) to ‘BB’ from ‘BB-‘, and Viability Ratings (VRs) to ‘bb’ from ‘bb-‘. The outlooks on the Long-Term IDRs are Stable.

The upgrades reflect structural improvement to Eurobank’s profitability from higher interest rates and low deposit rates; on careful cost management; and normalised loan impairment charges (LICs) following the bank’s successful strategy to reduce balance-sheet risk. This has allowed the bank to accumulate capital, strengthening buffers relative to regulatory requirements and provided greater flexibility to pursue investments and growth initiatives, which we expect to result in greater business-model sustainability.

Fitch Ratings also upgraded National Bank of Greece SA’s Long-Term Issuer Default Rating (IDR) to ‘BB’ from ‘BB-‘ and Viability Rating (VR) to ‘bb’ from ‘bb-‘. The outlook on the Long-Term IDR is Stable.

The upgrades reflect structural improvement to NBG’s profitability from higher interest rates and low deposit rates; on careful cost management; and normalised loan impairment charges (LICs) following the bank’s successful strategy to reduce risk on its balance sheet. This has allowed NBG to accumulate capital well above regulatory requirements and provided strategic flexibility to pursue investments and growth initiatives, which we expect to result in greater business model sustainability.

Fitch Ratings upgraded Piraeus Bank SA’s Long-Term Issuer Default Rating (IDR) to ‘BB-‘ from ‘B’ and Viability Rating (VR) to ‘bb-‘ from ‘b’. The outlook on the Long-Term IDR is Stable.

The upgrade reflects the acceleration of Piraeus’s strategy to reduce risk on its balance sheet, which led to a marked reduction of its non-performing exposure (NPE) ratio to levels more closely in line with higher-rated peers. It also reflects the strengthening of its regulatory capital ratios and the resulting reduction in capital encumbrance by unreserved problem assets (which include NPEs and foreclosed assets). The upgrade further considers Piraeus’s structurally improved profitability, which will drive further capital accumulation; stable funding; and improved access to the wholesale debt market to meet minimum requirements for own funds and eligible liabilities (MREL).

Fitch Ratings has upgraded Alpha Bank SA’s Long-Term Issuer Default Ratings (IDRs) to ‘BB-‘ from ‘B+’ and Viability Ratings (VRs) to ‘bb-‘ from ‘b+’. The outlooks on the Long-Term IDRs are Stable.

The upgrade reflects structural improvement in Alpha’s profitability, which will drive further organic capital generation and result in stronger capital ratios. The upgrade also reflects the continued downward trajectory in the bank’s non-performing exposure (NPE) ratio, stable funding and improved access to the wholesale debt market to meet minimum requirements for own funds and eligible liabilities (MREL).

Original Story: Greek City Times | Athens
Photo: Photo by Toomas Järvet in FreeImages
Edition: Prime Yield

Banks sell another restructuring fund after millionaire ECS deal

25 September, 2023

BCP has already disposed of the Corporate Restructuring Fund, with banking exposures to Cabelte and the CCM group. Caixa and Montepio have hired PwC and Baker Tilly to sell their positions.

The banks are selling yet another restructuring fund, and this after the millionaire deal with ECS luxury hotels at the end of last year. In the last few days of June, BCP closed the sale of its position in the Corporate Restructuring Fund, valued at around €20 million. ECO knows that Caixa Geral de Depósitos (CGD) and Banco Montepio hired PwC and Baker Tilly to organise a process to sell their units in this fund, which manages the banks’ exposure to electrical cable manufacturer Cabelte and ceramics group CCM.

ECO contacted the banks, but only Caixa confirmed that “it is carrying out an organised process to sell the Corporate Restructuring Fund”. BCP, which announced the sale in its first half report and accounts, declined to comment on the operation, namely whether it had sold its units to Oxy Capital, which is the fund’s management company, as two market sources told ECO. Novobanco – which has also sold its position – and Banco Montepio declined to comment.

In recent years, Portuguese banks have made a dramatic effort to reduce non-performing loans, including recoveries, cures and the sale of large portfolios. But now, with NPL (non-performing loans) ratios at historic lows and below the “magic number” of 5%, banks are turning to restructuring funds to continue cleaning up their balance sheets.

At the end of last year, they sealed the sale of the ECS restructuring funds, a portfolio of luxury hotels and golf courses, in what became known as the property deal of 2022, made for around €800 million with the American fund Davidson Kempner. They also tried to sell Discovery, another fund with tourism assets, but the process didn’t have a positive outcome.

This time, they are selling the Corporate Restructuring Fund, which is valued at around €70 million on the balance sheets of the four banks. Novobanco has the largest exposure, valued at 30 million, followed by BCP. The positions of the public bank and Banco Montepio are valued at 14 million and 4 million, respectively, and the organised process to sell these two holdings should be launched on the market next month.

This fund is managed by Oxy Capital, led by Miguel Lucas, and manages the exposures of these four banks to just two companies: Cabelte, which made €190 million last year and has liabilities of 84 million, and the Carlos Cardoso Mota group – the holding company had liabilities of 77.3 million in 2021.

Contacted by ECO, Oxy Capital had not replied by the time this article was published.

Bank disposed of a billion last year

These restructuring funds were created with the aim of taking over the management of property assets and other corporate exposures that ended up in the hands of the banks over the past decade due to debtor difficulties.

By handing over the problem assets to a specialised fund in exchange for units, the banks shared the risk between themselves. However, these exposures weigh heavily on risk-weighted assets and consume the banks’ capital, which is why they have long wanted to sell. In fact, the European Central Bank (ECB) has been pressurising them to get rid of these assets.

That’s what they’ve been doing. In 2022, BCP, Novobanco and Caixa reduced their exposure to these restructuring funds by around €1 billion, a decrease that is mainly explained by the ECS deal.

Despite this, these three banks still had exposure valued at more than €750 million, namely to the Discovery Portugal Real Estate Fund (400 million) and the Aquarius Real Estate Fund (250 million).

Original Story: Eco |Alberto Teixeira
Photo: Banco Montepio website
Edition and translation: Prime Yield

Bain Capital secures €500 million nonperforming leasing portfolio

21 September, 2023

Bain Capital, throughout its Special Situations arm, secured a €500 million leasing portfolio from Greece’s Piraeus bank. The acquisition has made via shares of Piraeus Bank subsidiary.

Bain Capital has acquired 100% of Sunshine Leases, a Greek financial leasing subsidiary of Piraeus Bank, including a portfolio of non-performing exposures from Greek leasing company HCL.

Original Story: PropertyEU |Branisçav Pekik
Photo: Bain Capital
Edition: Prime Yield

NPL close the first semester at their lowest level in 15 years

18 September, 2023

The nonperforming loan ratio (NPL) within the Spanish banks fell in June to 3.5%, thus dropping to its lowest level in the last 15 years. According to latest data published by the Bank of Spain and collected by Efe, the balance of NPL has fallen in just one month by around €655 million, standing at €42.173 million, its lowest figure since July 2008, when it was around €41.050 million.

This reduction allowed the weight of the total loan portfolio to be cut by 9 basis points, from 3.59% in May to 3.5% at the end of the first half of the year. This is the lowest ratio since 3.37% in December 2008.

In the years between 2004 and 2007, this percentage remained generally below 1% and then gradually rose until it exceeded 13.6% at the end of 2013. It then embarked on a downward path, which is continuing for the time being.

NPL ratio declines

In year-on-year terms, the NPL ratio has fallen by 38 basis points, from 3.88% in June 2022. Also contributing to this decline in NPLs was the increase in the overall loan portfolio, which closed the first half of the year at over €1.205 trillion, compared with almost 1.192 trillion in May.

The data broken down by type of institution show that the doubtful assets ratio of all deposit institutions (banks, savings banks and cooperatives) closed June at 3.39%, down from 3.39% the previous month and 3.80% a year earlier. The NPL ratio of financial credit institutions fell to 6.33% in the sixth month of the year, down from 6.58% in May and below the 6.22% of a year earlier.

Original Story: La Información |Noticia
Photo: Photo by Philipp K on FreeImages
Edition and translation: Prime Yield

How Piraeus Bank solved its NPL problem?

18 September, 2023

Piraeus Bank’s market cap is now around €4bn, compared with €1bn just a year ago. CEO Christos Megalou says he is determined to do everything in his power to ensure it stays there. Anita Hawser reports.When Christos Megalou became CEO of Piraeus Bank in 2017, the nonperforming loans (NPLs) accounted for 54% of the bank’s loan book.

It was familiar territory for the former investment banker who spearheaded the restructuring and recapitalisation of Piraeus’s competitor Eurobank in 2013 following the Greek sovereign debt crisis.

“That was a big challenge,” says Mr Megalou, referring to his recapitalisation of Eurobank worth around €3bn. “But it went well. So after Eurobank I left Greece and returned in 2017, when I was offered to head up Piraeus Bank, which had NPLs somewhere in the region of €35bn. That’s a big number. And it’s only through a lot of hard team work over the past six years [that] we’ve reduced this number to €2.5bn. It’s now about 6% of our [loan] book, and by the end of the year we hope to get it down to about 4%.”

Understanding the magnitude of the problem

“Our capitalisation is now around €4bn, from €1.1bn a year ago. But deep inside I’m an investment banker [he held senior positions at Credit Suisse Investment Banking for more than 20 years in London], and I know whatever goes up, goes down as well. I try to do everything I can so that it will stay up there.”

So how did Piraeus Bank go from problem child to star pupil? Mr Megalou attributes the bank’s turnaround to a combination of factors. “We started by understanding the magnitude of the problem and how to manage it. As part of this exercise we did the first sale of NPLs in Greece using real estate as collateral. We called it Project Amoeba because it was the first time a Greek bank sold secured NPLs.”

“We sold these loans in October 2018 to Bain Capital, and it was daring enough to buy the NPLs at 30 cents on the euro. A lot of people thought that was a good price because before that UniCredit had done a much bigger transaction, which got around 12 to 15 cents on the euro.

“Ours was a much smaller transaction – €1.5bn out of €35bn – but we still managed to get 30 cents on the euro, which was important as we proved to the market there were investors out there willing to buy non-performing exposures out of Greece using real estate as collateral.”

After that landmark sale to Bain Capital, Mr Megalou says the bank saw growing interest from firms looking to manage what was, at the time, Greece’s biggest portfolio of NPLs. “We had interest from Cerberus and Intrum from Sweden. We ended up going with Intrum, which is the biggest servicer of NPLs in Europe. It bought our non-performing exposures management unit, which we carved out from the bank with 1200 people attached to it. We sold that to Intrum for €440m of equity. It’s now managing it through an entity called Intrum Hellas where we are a 20% shareholder and Intrum owns 80%.”

The €400m it raised from the sale of the NPLs management unit to Intrum gave Piraeus the opportunity to claim another first for the bank and Greece: a €400m subordinated bond sale in 2019. “At that point in time, the bank could not raise equity,” says Mr Megalou. “That was very clear for us. In February 2020, we did a second tier-two bond for €500m with a rate of 5.5%. That gave us the opportunity to start cleaning up the bank.”

Then, Piraeus Bank went on to do an equity raise worth €1.4bn in 2021. Before that, it had exited six countries in southern Europe and the Balkans. The exit plan was part of a restructuring plan agreed with the European Commission’s Competition Authorities and included the sale of Piraeus’ subsidiaries in Serbia, Romania, Albania and Bulgaria. “As part of the restructuring plan, we agreed to eliminate foreign competition because, before I joined, the bank received state aid and one of the conditions of that aid was that we were obliged to get out of competing with European banks in other jurisdictions,” explains Mr Megalou.

The year 2022 saw Piraeus Bank return to profitability. In this year’s Top 1000 World Banks, Piraeus Financial Holdings actually topped the table of the biggest movers from loss to profit. “In 2023, we’re running at something north of 12% return of tangible book value” says Mr Megalou. “All this is anchored on a very efficient and effective retail network and a solid deposit-gathering machine. Right now, we have about €58bn of deposits, which is one of the highest numbers ever for the bank.”

Original Story: The Banker | Anita Hawser
Photo: Piraeus Bank website
Edition: Prime Yield

Net interest income has already reached its peak for some Portuguese banks

18 September, 2023

Financial rating agency DBRS says that net interest income growth may have peaked in some Portuguese banks or be close to it, pointing out that it catapulted profits in the first half of the year.

The financial rating agency DBRS considers that net interest income growth may have reached its peak in some Portuguese banks or may be close to it in others, according to an analysis note.

In the note, which does not constitute a rating action, DBRS points out that the profits of the largest Portuguese banks – Caixa Geral de Depósitos (CGD), Millennium bcp, Novo Banco, Caixa Económica Montepio (Montepio), BPI and Santander Totta – in the first half of the year increased by around 50% year-on-year to €1.946 billion, sustained by growth in net interest income.

“In the future, we expect the results of Portuguese banks to remain solid, but some pressure may arise,” the note reads.

The analysts point out that, “given that most of the banks’ loan portfolios have been fully revalued”, net interest income growth “may have peaked for some banks or be close to peaking for others, due to a possible stabilisation of interest rates, a slowdown in new loan volumes and an increase in deposit remuneration in the coming quarters”.

DBRS recalls that net interest income grew by around 73% in the first half of the year compared to the first half of last year, the result of rising interest rates, as assets continued to be revalued at a faster rate compared to deposits.

The agency also notes that “over the last few months there has been a debate in Portugal about the possibility of introducing a tax” on extraordinary banking profits, but “it has been ruled out for the time being”.

However, it warns that recent developments in Italy, where on 7 August the government announced a tax along these lines, could reignite the debate in Portugal.

DBRS also points out that asset quality has remained resilient, with non-performing loans (NPLs) stable or even decreasing further in some banks, although it continues to “expect some deterioration in asset quality over the medium term”.

Original Story: Expresso/LUSA
Image: Caixa Geral de Depósitos headquarters
Edition and translation: Prime Yield

Alpha Bank sells NPL €1.5billion portfolio to Hoist Finance

15 September, 2023

Alpha Bank ACBr.AT, one of Greece’s four largest lenders, said on Monday it signed a binding agreement to sell a 1.5 billion euro ($1.62 billion) portfolio of bad loans to Hoist Finance AB.

The transaction, named Project Cell, is expected to reduce Alpha Bank’s non-performing exposures (NPE) ratio by 20 basis points, it said.

The deal is expected to be completed in the last quarter of the year.

Original Story: Reuters | Leferis Papadimas
Photo: Alpha Bank website
Edition: Prime Yield

Spanish banks’ NPL ratio fell to 3.50% in June

11 September, 2023

The nonperforming loans (NPL) ratio of Spanish banks fell to 3.50% in June, after increasing to 3.59% in May, according to provisional data published by the Bank of Spain.

Thus, the NPL ratio fell by 38 basis points compared to June 2022 and remained at its lowest level since December 2008, when it stood at 3.37%.

The decrease is explained, on the one hand, by the €655 million reduction in the volume of doubtful loans held by deposit institutions and financial credit institutions, to €42.173 billion, the lowest volume since July 2008. Compared with the same month in 2022, doubtful loans decreased by €5.743 billion.

On the other hand, total credit granted rose in June by €13.667 billion, to €1.2 trillion. However, the slowdown in lending can be seen in the year-on-year comparison, as the volume of credit fell by €28.948 billion compared with June last year.

The figures include the methodological change in the classification of Financial Credit Establishments (EFCs), which since January 2014 have ceased to be considered as credit institutions.

Excluding the change, the NPL ratio would stand at 3.59% in June, since the credit balance was €1.174 trillion in that month, when excluding the credit of CFCs.

The data broken down by type of institution show that the doubtful assets ratio of all deposit institutions (banks, savings banks and cooperatives) closed June below the 3.39% of the previous month and the 3.80% of a year earlier.

The NPL ratio of financial credit institutions fell to 6.33% in the sixth month of the year, down from 6.58% in May and below the 6.22% of a year earlier.

According to data from the Bank of Spain, the provisions of all credit institutions fell to €30.529 million in June, down 1.10% compared with the previous month and down 8.48% compared with June 2022.

Original Story: Idealista |Redacción
Photo: Banco de España
Edition and translation: Prime Yield

“Big Four” exceed expectations

11 September, 2023

The “big four” Greek banks – Alpha, Eurobank, National and Piraeus – posted impressive first-half results, analysts say, focusing on their strong profitability and its main underlying cause, interest and commission fees, but also the quality of their assets and their liquidity, which led all to adjust their end-year goals upward.

NBG Securities notes that banks had a very strong second quarter, with improving trends in pre-provision income. This reflects interest rate hikes by the European Central Bank, the expanded loan portfolio, with new disbursements totaling €8.8 billion, and the improvement in operating expenses resulting from successful containment of costs. The higher turnover helped with the rising commission fees. Also, continuing offloading of nonperforming loans to funds enhanced the quality of their portfolio. Liquidity stayed high, as well.

Optima Bank notes that second-quarter results outperformed its own, and the wider market’s, expectations, as profits were higher than expected and writeoffs of bad loans lower. Also, all four banks’ capital positions were strengthened and liquidity was plentiful, Optima notes.

Specifically, combined net profit rose 31% quarter-on-quarter to €1.03 billion and average Tier 1 capital, which acts as a cushion in the event of a financial crisis, increased by 0.7% to 14.7%.

Net interest income rose 8% in the second quarter to €2.02 billion and income from commissions was up 11% to €471 million. Non-core income was €112 million or just 4% of total income. Total income rose 10% quarter-on-quarter to €2.37 billion.

Provisions for the impact of nonperforming loans rose 67%, but this was heavily affected by Piraeus’ restructuring of the nonperforming part of its own portfolio that cost €498 million, with average cost of risk rising to 0.84% from 0.76% in the first quarter of 2023. Nonperforming exposures fell by €256 million to €9.06 billion, with net nonperforming exposures at €3.68 billion.

As Alpha Bank CEO Vasilios Psaltis noted, “top-line growth continues to dominate the picture as tailwinds from higher rates are further strengthened by our active commercial policy.”

Original Story: Kathimerini | Eleftheria Kourtali
Photo: Eurobank website
Edition: Prime Yield

Consumer credit halted in June

11 September, 2023

Consumer credit granted in June suffered a slowdown. There was a 6.2% drop in the number of new contracts compared to May, according to data from the Bank of Portugal.

In total, families applied for €633 million in consumer loans in June, 46 million less than in the previous month.

The drop occurred in the various categories of consumer credit.

But above all in personal loans and car purchase loans.

Compared to June last year, this type of loan also fell, but by 0.6%.

Original Story: RTP
Image: Sprinno, CC0, via Wikimedia Commons
Edition and Translation: Prime Yield

Households prefer to take out credit and get into debt rather than not go on holiday

8 September, 2023

The number of short-term consumer loans has increased by almost 8%. These holiday loans, according to experts, are dangerous because of their high interest rates and because they are not thoroughly analysed by the consumer.

The tightening of monetary policy is causing interest rates on consumer loans to rise. Spanish banks have raised the rate on these loans to over 10% in barely a year. This has not stopped Spaniards from financing their holidays. Between paying more for a loan or not going on holiday at all, citizens have a clear preference. Almost half of those surveyed by Amadeus for its report ‘Consumer Travel Spend Priorities 2023′ consider travelling a priority expense. BNP Paribas’ Cetelem observatory confirms this trend in Spain. Going sightseeing is among the top two options in purchase intention in July for the next three months, along with fashion and sport.

According to the latest data on the amount of outstanding balances provided by the Bank of Spain, €45.868 billion were requested in short-term consumer loans, 7.9% more than in June 2022. Around 10% of this type of credit for up to one year is dedicated to travel, according to the Financial Users’ Association (Asociación de Usuarios Financieros). Therefore, in June 2023 around €4.5 billion have been granted for holidays in Spain. Moreover, as Antonio Luis Gallardo, head of research at Asufin, points out, holiday loans have been gaining in importance for three consecutive years; it is not a cyclical or recent trend, as it predates the pandemic. Other destinations for these loans are works and renovations, studies, vehicle purchases or treasury.

However, financing holidays is a risky action for the financial health of families. “The main problem with this type of loan is that they are not usually very well thought-out loans,” says Gallardo. Loans for tourism purposes are usually not made through a bank, but are often taken care of by the travel agencies themselves. This means that the consumer does not analyse the conditions, nor does he or she compare with other entities.

In addition, interest rates are almost always higher than those of financial institutions, about one or two percentage points, and there is a tendency to pay them in cheaper instalments, which leads to a higher and more lasting indebtedness. “There can be a snowball effect, and suddenly the next trip, back to school or at Christmas, we find it difficult to finance”, adds the head of Asufin.

Besides, the amounts of loans being borrowed are higher, mainly because tourism spending is increasing due to inflation. Observatur reported an increase of €15 per person, reaching €625 during their holidays. CaixaBank also recorded a year-on-year increase in tourist spending in June (+5.7%), which also suggests a certain slowdown in growth in the sector – the lowest rise since spring 2021.

Original Story: Cinco Dias | Samuel Pérez
Photo: Photo by Pablo Rodríguez from FreeImages
Edition and translation: Prime Yield

Reports note strength of Greek banks’ results

8 September, 2023

More positive reports on Greek banks have come out from Canadian ratings agency DBRS and US financial services company Jefferies Group.

DBRS notes that improvements in operational results and a better risk profile support a further strengthening of the banks’ capitalization. But it also expects a slowdown in net income from interest rates.

Jefferies notes that rising rates and strong economic activity have boosted the sector.

It also estimates that investors will henceforth focus on each bank’s ability to further clean up non-performing assets and to keep rising central bank interest rates from affecting its own rates structure.

Original Story: Kathimerini | Newsroom
Photo: Photo by Jonte Remos in FreeImages
Edition: Prime Yield

Banks add €11 billion in provisions anticipating a rising in NPLs

4 September, 2023

The ECB’s interest rate hikes have boosted banks’ profits after years of low profitability, but the change of scenario has had its downside. Customers are now suffering a growing increase in the cost of their debts and this has forced banks to sharply increase provisions in anticipation of a rise in non-performing loans (NPL).

In the first part of the year, the six large Spanish banks listed on the Ibex added €10.868 in provisions to face a possible default , an increase of 27% compared to €8.537 billion the previous year, according to a report by the consulting firm Accuracy.

This is considerably higher than the combined profits in Spain of the six banks, Santander, BBVA, CaixaBank, Sabadell, Bankinter and Unicaja, of €5.373 billion in the first half of the year, 49% higher than a year ago. This is despite the fact that the banks are still flush with liquidity, the Achilles heel that precipitated the falls of Silicon Valley Bank and Credit Suisse. Including international activity, the profit for the half year was around €12.4 billion.

The ECB recently warned that the near-term outlook for the economy has deteriorated due to a contraction in demand. The central bank says tighter financing conditions are behind the trend, which may prove key in determining whether it will raise interest rates beyond 4.25%.

Among Spanish banks, the only ones that have not raised provisions have been Unicaja and Sabadell, the latter due to positive impacts on its real estate portfolio and litigation. Santander, on the other hand, raised loan-loss provisions sharply in anticipation of a worse performance by customers, especially in the United States. They rose from €5.770 billion a year ago to €7.426 billion in the first half of the year. This is a rise of 28%.

BBVA has increased provisions by 36%, to €2.087 million, compared with 19% for CaixaBank, to €556 million, and 26% for Bankinter, to €193 million. In the case of CaixaBank, these provisions actually fell in the second quarter compared to the first due to the improved macroeconomic outlook in Spain, but the picture for the half-year as a whole continues to show increases.

For the time being, these movements are part of the preventive manoeuvres before the foreseeable arrival of storm clouds that have yet to appear on the balance sheets of Spanish banks. Santander’s NPL ratio has remained at 3.1%, while those of BBVA and CaixaBank have fallen, in the first case from 3.7% to 3.4% and in the second from 3.1% to 2.6%. On the other hand, Sabadell’s rose to 3.5% and Unicaja’s to 3.6%.

There is another warning light that is also still off. When a loan passes to special surveillance risk it is computed as stage 2 and when the risk is doubtful, it passes to stage 3. These are the two steps prior to default, which have their own accounting drawers and allow banks to anticipate the danger. At the end of the first half of the year, stage 1 and stage 2 of the banks’ accounts amounted to €226.13 billion, just €367 million more than a year ago.

Original Story: La Vanguardia | Iñaki de las Heras
Photo: CaixaBank website
Edition and translation: Prime Yield

White & Case advised Intrum on Piraeus’ €300 million Project Senna securitization

4 September, 2023

Law firm White & Case LLP has advised Intrum Holding AB (Intrum) on a securitisation involving Piraeus Bank’s Project Senna non-performing loan portfolio.

“Intrum and Piraeus Bank have already closed seven other securitisations as part of their successful strategic partnership, now totaling more than €17 billion gross book value,” said White & Case partner Dennis Heuer, who co-led the Firm’s deal team.

The Project Senna portfolio consists of loans with a total gross book value of €300 million at March 31, 2023. It is held by Senna NPL Finance DAC and consists of approximately 60% small-sized mortgages, and 40% consumer and small business loans.

Piraeus and Intrum have agreed that Intrum Hellas will act as servicer of the Project Senna portfolio, and Intrum has agreed to acquire the entirety of the notes of the securitisation from Piraeus.

Original Story: White & Case | Press Release
Photo: Piraeus Bank
Edition: Prime Yield

Portugal has the second highest ratio of non-performing loans in Europe

31 May, 2023

The banking sector’s more cautious stance on lending is having a significant impact on the reduction of non-performing loans. In a challenging macroeconomic environment, marked by rising interest rates, high inflation and continued uncertainty surrounding the war waged by Russia in Ukraine, the sale of non-performing loan (NPL) portfolios in Portugal is not expected to exceed €1.7 billion in transaction volume in 2023, concludes Prime Yield in the latest edition of its annual report “Keep an Eye on the NPL & REO Markets – Portugal, Spain, Greece & Brazil”.

“Despite both indicators continuing to exhibit a downward trajectory over the last year, Portugal maintains the second highest NPL ratio in Southern Europe, only surpassed by Greece, where the weight of non-performing loans in total credit was 4.9%,” the Prime Yield report also states, adding that “despite the progress made in recent years, the Portuguese NPL ratio continues to almost double the European average, which positioned this indicator at 1.8% in the third quarter of 2022.

The current volume is identical to that recorded in 2022, a year in which NPL portfolio sales activity in Portugal fell by 44%, putting pressure on this market at the lowest levels of recent years. Only in 2020, in a context of business paralysis due to the pandemic, NPL sales activity was lower, standing at €1,000 million.

It should be recalled that the peak of non-performing loans transactions in Portugal was in 2019, when it reached around €8,000 million, and that after the fall in 2020 to the aforementioned €1,000 million, 2021 marked a recovery to the levels of 2017 and 2018, with around €3,000 million transacted, a trend that 2022 did not confirm.

In the third quarter of 2022, the national financial system recorded €7.2 billion in non-performing loans, an amount that corresponds to 3.1% of the total volume of credit granted in the country (NPL ratio).

Original Story: Visão| Newsroom
Photo: Big Stock Photo
Translation & Edition: Prime Yield

Intrum buys Haya Real Estate from Cerberus fund for 140 million euros

31 May, 2023

Swedish debt management specialist Intrum has reached an agreement to buy 100% of its rival Haya Real Estate, owned by US fund Cerberus, for 140 million euros, the companies announced in a joint statement on early may.

The transaction will integrate Haya into Intrum’s structure in Spain, thus expanding its client portfolio and volume of assets under management. Specifically, Haya manages more than 11 billion euros in 105,000 real estate assets, which will now be added to Intrum’s portfolio. The Nordic firm is listed on Nasdaq Stockholm and is active in credit and asset management. It has a presence in 25 countries in Europe and Latin America, and last year it expanded its presence in Spain by acquiring the 20% stake in Solvia held by Banco Sabadell. The deal announced on Thursday will see the integration of a team of more than 550 professionals. The companies expect the deal to be completed in the third quarter of this year, once it is approved by the regulator. The bondholders, who represent approximately 60% of Haya’s 340.3 million debt, have already given the go-ahead.

The Cerberus fund had long sought to divest itself of the real estate asset manager, which was founded in 2013 in the heat of the real estate crisis to manage Bankia’s assets. The decision to divest from Haya accelerated from 2018, when the company’s IPO for more than €1bn was thwarted. At that time it had more than €39,884 million in assets under management by Bankia, Sareb, Cajamar, Liberbank, BBVA and other financial institutions. And the valuation of the servicer (the anglicism used to describe these companies in real estate jargon) exceeded 1.2 billion.

While the sale did not come to fruition, the outbreak of the pandemic opened a restructuring process as a result of Haya’s financial problems. Last year, the company led by Enrique Dancausa agreed an ERE for 185 employees after losing contracts to manage assets from Sareb and Unicaja. The agreement announced Thursday, the companies say, will strengthen Intrum’s relationship with Cerberus, one of the largest investors in non-performing asset portfolios (real estate and non-performing loans) globally. And it will expand the Swedish group’s business with some of Spain’s leading financial institutions such as BBVA, CaixaBank and Cajamar.

In addition, the company highlights that the purchase addresses one of the organisation’s strategic priorities for 2023, by accelerating its commercial development and strengthening its secured credit and real estate asset management business.

Original Story: El País | Sandra López Letón
Photo: Intrum website
Translation: Prime Yield

Bank of Greece says banks should cut NPLs further

30 May, 2023

The persistence of inflationary pressures and geopolitical tensions, the risk of a sharp repricing of assets in international money and capital markets, as well as the recent turmoil in the US and Swiss banking systems, have considerably heightened risks to financial stability, the Bank of Greece (BoG) said in its Financial Stability Review released on Thursday.

The central bank noted that the Greek banking sector is now clearly better placed than in the past to absorb international market shocks, while the implementation of banks’ strategies for resolving the legacy stock of nonperforming loans helped all four systemic Greek banks to achieve a single‑digit NPL ratio.

The banking sector’s capital adequacy improved further to a satisfactory level, above the regulatory minimum, as banks posted profits after two loss‑making years, BoG said, adding that the liquidity of the sector improved, as a result of increased customer deposits and despite voluntary partial repayments of funds raised through the European Central Bank.

The NPL ratio has declined (to 8.7% in December 2022), although it remains significantly above the corresponding European average.

Therefore, banks should step up their efforts to achieve further convergence, BoG said.

Moreover, inflation and a slowdown in economic activity might affect the financial condition of non‑financial corporations and households, leading to a new wave of NPLs.

Original Story: Ekathimerini | Newsroom
Photo: Photo by Toomas Järvet in FreeImages
Edition: Prime Yield

Banco de Portugal identifies mortgage default as a risk to financial stability

30 May, 2023

Central Portuguese bank Banco de Portugal (BoP) has identified increased default on home loans as one of the main risks to financial stability, according to the Financial Stability Report published on Wednesday.

In the document, the BdP said that in recent months, “risks to financial stability have remained high” and amongst the main risks and vulnerabilities it noted the possibility of an increase in loan defaults, particularly on mortgages, “due to high inflation, a rise in short-term interest rates and a potential worsening of the unemployment rate.

In Portugal, the preponderance of variable interest rates on home loans means that recent and rapid rises in interest rates immediately increase the burden of debt, making it difficult for private banking clients to pay back loans.

The potential default of the most vulnerable companies is also a risk for Banco de Portugal, which considers that, “despite recent evidence of resilience of the sector, a more unfavourable economic and financial context, characterised by lower economic growth and higher interest rates, will increase the percentage of companies in vulnerability”.

Original Story : TSF /LUSA
Photo: Banco de Portugal
Translation: Prime Yield