NPL&REO News

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 FreeImages.com
Edition & Translation: 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 FreeImages.com
Edition & Translation: Prime Yield  

Banks under pressure: DBRS leaves a warning to Portugal

The European banking business will continue under strong pressure in 2021. Despite the expected economic recovery, the burden of non-performing loans will weigh heavily on the financial institutions in 2021, according to the Canadian rating agency DBRS, which points especially to countries like Portugal, Spain and Italy.

“The outlook for European banks remains challenging in 2021. We expect the revenue pressure banks faced in 2020 to continue in 2021,” says the DBRS report released this Thursday. “Given the tough revenue environment and low returns, reducing operating costs remain a clear priority, and the pressure to improve returns is likely to lead to further domestic consolidation in some countries.”

The pandemic generated a deep economic crisis, which has not yet materialised in a worsening of non-performing loans (NPLs) due to government support measures such as moratoria and credit lines with state guarantees. “Nonetheless, it is clear that loan losses will increase when government support ends. The trajectory of NPLs will remain a function of the length of economic restrictions, overall economic impact, as well as any additional support measures,” the agency warns.

The latest available data refers to the first nine months of 2020, and the DBRS analysis (which included 40 European banks, namely two Portuguese banks: Caixa Geral de Depósitos and BCP) indicates that there has already been an increase in NPL levels in Norway, Germany and the Netherlands mainly due to very low bases.

However, these are not the countries most at risk. “Banks in Portugal, Italy and Spain continued to reduce NPLs in 9M 2020, however, these countries still hold high levels of NPLs and have high NPL ratios relative to other European banks and above the average of the sample,” the agency notes. “There has been a large proportion of borrowers resuming payments after the end of the moratoria. But the capacity of borrowers to make payments depends on the economic shock experienced in each country.”

The beginning of 2021 arrived with new lockdowns in a number of European countries, including Portugal, so the economic impact of the pandemic is still uncertain. The extent of the restrictions will impact asset quality and the cost of risk in 2021.

“Capital levels remained solid in spite of weaker earnings. However, we expect the deterioration of asset quality in 2021 to trigger an increase in risk-weighted assets. In addition, internal capital generation could reduce given lower earnings and the resumption of dividends payment,” DBRS adds.

Original Story: ECO News
Photo: Photo by Sergey Klimkin in FreeImages.com

Whitestar closes purchase of a NPL portfolio to BCP

BCP bank has closed the sale of a NPL portfolio, called “Projeto Webb”, to the consortium Group Arrow/Christofferson, Robb & Company (CRC) confirmed Whitestar Asset Solutions, a company of the Arrow Group specialized in the management of credit portfolios (NPL) and real estate.

This is a more granular portfolio whose initial value was 450 million euros, but which has been adjusted to 270 million euros.

With this transaction, in addition to the purchase of the NPL portfolio from the Novo Banco, named “Carter”, announced in December, Whitestar Asset Solutions now manages over 9 billion euros in assets.

Novo Banco sold in December a portfolio of unproductive assets with a gross book value of 79 million euros for about 37 million. This was a portfolio made up of small secured and unsecured loans, i.e. it includes both collateral and non-collateralised loan contracts.

The “Carter” operation, unlike others over the past two years, does not include assets covered by the Contingent Capitalisation Facility under the Resolution Fund.

In all, in 2020 Whitestar won the management of four portfolios of NPLs (bad loans). After winning the management of two portfolios of NPLs sold by Santander (BST52 and 53), Whitestar confirms that in December, in two competitive processes, Arrow Global’s fund (sole shareholder of the company led in Portugal by João Bugalho) won the tender for the purchase of two portfolios of unproductive assets, in consortium with Christofferson, Robb & Company (CRC). The first portfolio, the Webb portfolio, originated by BCP, has a total of 270 million euros in debt, while Carter, originated from Novo Banco, has 92 million euros in debt.

The market for the sale of problem assets remains active. The Novo Banco, for example, is in the process of selling the “Wilkinson Project” portfolio, worth 200 million. Eco reported that Davidson Kempner, Atena Equity Partners (in consortium with Blantyre), and Bank of America Merrill Lynch moved into the second phase. The market expects the financial institution to launch a new portfolio in the market earlier this year.

BCP has yet to close the sale of the “Ellis” portfolio, having been chosen as the buyer, according to Eco, the management company Davidson Kempner. Initially, the “Ellis Project” had a value of 300 million euros, but with the withdrawal of some credits the value of the portfolio was reduced to about 170 million, Eco also advanced.

Original Story: O Jornal Económico | Maria Teixeira Alves
Photo: Millennium bcp website
Edition/Summary: Prime Yield

Despite 9-month losses, Novo Banco halved its NPL stock up to September

Portugal’s Novo Banco, which emerged from the ruins of the collapsed Banco Espirito Santo, reported a 49% leap in its net loss for January-September to €853 million following provisions to discontinue its business in Spain.

The bank, 75% owned by Lone Star since October 2017 and 25% by the state-backed Portuguese Resolution Fund, said its results were also hit by provisions for bad loans.

The impairments and provisions for the exit from its retail network in Spain and for higher credit risk totalled around €727 million, the bank said, adding it also took a hit of €187.2 million due to the impact of the COVID-19 pandemic.

Earlier this year, sources told Reuters that Novo Banco was looking to sell its loss-making retail network in Spain, seeking to bolster its balance sheet and prevent further losses. The provisions reflect expected losses on any deal.

The bank has already sold assets in France, Asia and Cape Verde.

Novo Banco’s recurrent net income fell 30% to €98 million, but the bank said the results showed its “value-creation capacity and sustainable profitability”.

Net interest income, a measure of earnings on loans minus deposit costs, increased 9.3% to nearly €373 million.

The lender halved its non-performing loans (NPL) to €2.8 billion in September, after it sold problematic asset portfolios, and cut its NPL ratio to 9.7% from 19.9% a year earlier.

Original Story: Reuters |Sérgio Gonçalves 
Photo: Novo Banco website
Edition: Prime Yield

Millennium bcp’s NPE fell by €1 billion from a year ago

Portugal’s largest listed bank Millennium bcp reported a 46% drop in its nine-month net profit to €146.3 million, dragged down by higher provisions and impairments in the wake of the coronavirus pandemic.

However, its net interest income (NII), a measure of earnings on loans minus deposit costs, was little changed at €1.15 billion from a year ago, the bank said in a statement.

On a positive note, its core net income – NII plus net fees minus operating costs – grew 1% to €835.2 million.

But loan provisions increased 25% to €374.2 million in January-September 2020 from a year ago, while other provisions and impairments skyrocketed 126% to €176.4 million, the lender said.

“We have significantly reinforced impairments in the context of the pandemic. (We’re) adapting the business to the crisis. We have moved from a growth mode to a balance sheet protection mode,” Chief Executive Miguel Maya told a news conference.

Portuguese authorities in March said bank customers could suspend loan repayments, in a move aimed at relieving pressure on businesses and individuals during the pandemic. The moratorium has been extended until September 2021.

Millennium bcp said it had already granted more than 100,000 such loan repayment holidays.

The bank said its non-performing exposures fell by €1 billion from a year ago to 3.6 € billion in September after it sold various problematic asset portfolios.

Millennium bcp, whose main shareholder is China’s Fosun group, said its fully implemented Tier 1 common equity (CET1) capital ratio stood at 12.4%, comfortably above the required 8.8%.

Original Story: Reuters |Sérgio Gonçalves 
Photo: Millennium bcp website
Edition:Prime Yield

Portuguese banks will merge over the next couple of years

According to the CEO of Portuguese State bank Caixa Geral de Depósitos (CGD), Paulo Macedo, Portugal’s banking sector will likely consolidate over the next two years.

That consolidation, which could involve mergers and acquisitions, is likely to be propelled by the financial results of the banks over the coming quarters said Paulo Macedo on a panel ‘What lies in store for the banking sector?’.

“There is a timeline of events. We will have the accounts for 2020, there will be general board meetings in May 2021, and several institutions will have to see what their prospects are in the face of these results and in terms of profitability and own capital,” said the CGD CEO when asked about possible bank mergers.

According to Paulo Macedo, bank consolidation will take place “over the next two years” since “there will be institutions which will have to look at their prospects as a result of their results,” he said without mentioning Banco Montepio which is widely believed to be in a weak position within the sector.

“Caixa, clearly, is not blind to consolidation and it will happen,” said Macedo at the conference ‘The Banking Sector of the Future’ (Banca do Futuro) organised by the newspaper Jornal de Negócios which took place on 27 October with the presence of the CEOs of the main national banks (CGD, BCP, Novo Banco, Santander and BPI).

Despite insisting that there was no acquisition on the horizon for CGD, Paulo Macedo said that CGD was not “in the least indifferent” to an eventual consolidation process.

CGD is currently following a strategic plan agreed with the European Commission which prohibits acquisitions, but that plan ends at the end of the year.

But should there be any mergers and acquisitions, “Caixa is clearly being overtaken by other banks,” he said.

“We’re not hung up on whether we are the first, second or third largest bank (in Portugal) but we do need to have size and scale in order to be a public bank,” he said, meaning that a public bank needed to be big in order to be relevant in the system.

Miguel Maya, CEO of BCP, said that he was “in no doubt” that consolidation would happen, but argued that this would be brought to bear by the influence of European consolidation. The incentives were being created which would lead to “sums of money moving away from Portugal”.

The specific position of Portugal was also favourable for European consolidation said the CEO of Millennium.

“Consolidation is something that will happen, it will be a future trend and the crisis will speed up this consolidation,” he said, giving several examples of situations which had left the Portuguese banking sector at a disadvantage against European competitors, the main one being the banking sector having to capitalise the National Resolution Fund to keep Novo Banco afloat, into which BCP pays €47 million a year.

Original Story: Essential Business | News 
Photo: Photo by Pasqual antonio in FreeImages.com
Edition: Prime Yield

€871 billion in loans benefited from COVID-19 relief measures across EU

Bank loans totalling €871 billion euros benefited from COVID-19 relief measures in the European Union, the bloc’s banking watchdog said, in its first assessment of the potential pipeline for problem loans.

Moratoriums or relief measures such as payment holidays and government guarantees were rushed in after economies went into lockdown in March to fight the pandemic.

Around 17% of loans subject to relief measures were classified as ‘Stage 2’ by the end of June, meaning banks are required to start making provisions for potential losses — more than double the share for total loans, the European Banking Authority said.

“Banks should remain vigilant and continuously assess the asset quality of these exposures,” the watchdog added.

Banks in Cyprus, Hungary and Portugal had the highest share of total loans subject to relief measures, with banks in France, Spain and Portugal having the highest volumes.

The €871 billion total represents 6% of banks’ total loans across a sample of 130 lenders, with 16% of loans to small companies granted moratoriums, followed by 12% of commercial real estate loans and 7% of mortgages, the EBA said.

Around half of the loans under moratoriums were due to expire before September, with 85% of the loans due to expire before next month.

A “cliff edge” effect as moratoriums expire, coupled with a prolonged downturn, might lead to a sudden significant increase in the level of non-performing loans, the EBA said.

It noted that the second wave of COVID-19 had already led some countries to extend moratoriums beyond year-end, but warned: “The continuation or persistence of moratoria may also have the side-effect of potential systemic risk for financial stability, as borrowers may develop a ‘non-paying’ culture.”

The EBA will publish the results of its Transparency Exercise to provide detailed bank-by-bank data on loans on Dec. 11.

Original Story: Reuters | Huw Jones 
Photo: Photo by Svilen Milev in FreeImages.com
Edition: Prime Yield

Novo Banco to sell €1.2 billion of Bad Loans until the end of the year

Lone Star’s Novo Banco, Portugal’s fourth-biggest bank by assets, aims to sell as much as 1.2 billion euros of non-performing loans (NPL) by the end of the year as it seeks to post its first annual profit in 2021, according to Bloomberg.

Most of the loans were part of a portfolio called Nata 3 that the lender has been preparing for sale before the pandemic crisis, Chief Executive Officer Antonio Ramalho said in a interview. The bank, controlled by Lone Star, now plans to adjust the sale to reflect the adverse market conditions caused by the Covid-19.

Without the pandemic, it would have been natural for us to sell Nata 3 through a single transaction,” Ramalho said. “We now need to figure out a way of adapting to the current situation.” The portfolio includes mortgages, consumer credit and bigger loans.

Novo Banco, which emerged from the breakup of Banco Espirito Santo SA in 2014, has been selling NPL and non-core assets as part of a plan to lower what was once one of Europe’s highest bad loan ratios.

The Portuguese lender’s NPL ratio was just under 10% in July, down from around 33% in 2016. The goal is to reduce that further this year so that it’s in line with other Portuguese banks, Ramalho said. The average ratio across the industry was 6.5% at the end of 2019.

Demand for NPL portfolios has remained “reasonably stable” in Portugal, Ramalho said. Most buyers are long-term investors based in the U.S. or the U.K.

Novo Banco is sticking to its goal of posting a profit for 2021, according to the CEO. The lender reported a 2019 loss of 1.06 billion euros.

The bank has already received about 3 billion euros from Portugal’s Resolution Fund out of the maximum of 3.89 billion euros allowed under the contingent capital agreement that was set up when Lone Star bought 75% of the Portuguese lender in 2017.

Original Story: Bloomberg |Henrique Almeida
Photo: Novo Banco site
Edition: Prime Yield

10% of households with credit are in default

For the fourth month in a row there is an increase in the percentage of households in credit default situation, according to the latest data released by Portugal’s Central bank (BdP). And, in April about 10% of households with loans were unable to pay their instalments, the highest percentage since May 2018.

Overdue loans in consumer credit rose for the third consecutive month, to 6.8% from 6.7% in March. As for the mortgage loans, the default ratio stabilized at 4.4%.

The total amount of default credit by households fell in April to €2,429.8 mn, from the €2,445.7 mn in the previous month. 

The percentage of default is also increasing for nonperforming corporate credit. Withing the hospitality and F&B sector, 25% of the borrowers were in default in April, comparing with the 21,8% in March and the 21,3% recorded one year before. This increase corresponds to the forced lockout period due to the State of National Emergency established in March 18th and that last until May 2nd.. During that time, several companies closed – some of which permanently – and the unemployment rose, as well as the layoff. 

Before the pandemic crisis, the credit granted to households hit new records. During the first trimester of 2020, the credit applications rose to €4.9 billion. This increase was even felt in the consumer credit, which Portugal Central Bank has been struggling to brake with the reinforcement of limits for its concession.

Original Story: Dinheiro Vivo | Elizabete Tavares 
Photo: Photo by Hugo Humberto Plácido da Silva from FreeImages.com
Translation & Edition: Prime Yield

Novo Banco’s operation in Spain up for sale

The US Fund Lone Star put the Novo Banco’s operation in Spain for sale, after the injection of €850 million by the Portuguese State into the bank, according to El Confidencial.

According to some sources close to the Spanish newspaper, the decision has even been communicated in recent days by the banks’ CEO António Ramalho to the employees of the Spanish subsidiary. And Novo Banco itself has already contacted investment banks to start the process of finding a buyer, which, if everything goes as planned, should start soon.

This decision comes after the injection of €850 million by the Portuguese State into the Novo Banco, which caused controversy among the political parties. In the market, says El Confidencial, it is still not clear whether this is a sale in block or some business.

The results of the Spanish subsidiary are not known, but sources said to the Spanish newspaper that it has hardly generated profits in recent years. The lack of a determined investment in Lisbon has led to a decrease in business over the last five years, with income from interest and commissions falling from €150 mn to €55 mn in 2019.

Original Story: Eco News | News 
Photo: Novo Banco Site
Edition: Prime Yield

Portuguese banks forced to make €200 million in provisions due to pandemic

Four of Portugal’s largest banks saw their profits halved in the first quarter of 2020 because of the provisions needed to deal with the pandemic crisis.

Caixa Geral de Depósitos (CGD), BCP, Santander and BPI have recorded generic provisions of €200.8 million to face the economic crisis caused by the pandemic, according to Jornal de Negócios. BCP was the bank that put most money aside: €78.8 mn, followed by CGD with €60 mn, while Santander and BPI set aside €30 mn, in what is a cautionary exercise from the banks before what they expect to be an increase in the number of defaults. 

Nevertheless, the effect of provisions on the results of the first quarter of Caixa Geral de Depósitos (CGD), BCP, Santander and BPI has already been felt with intensity: profits have fallen by half in relation to the same period of last year, from €466 mn euros to €246 mn.

Original Story: Eco | News 
Photo: Photo by Alfonso Romero for FreeImages.com
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

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

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

There’s high probability of losses within Portuguese banks this year, APB warns

There is a high probability of losses within Portugal’s banks this year, due do the Pandemic, the Portuguese Banking Association (APB) warns.

Fernando Faria de Oliveira, APB’s President, says the banks are being unfairly criticized. «They are doing everything in their power to help», he said in an interview with Radio Observador. In addition, the banking sector is also concerned about the impact of the crisis and is already anticipating losses. «The probability of banks turning negative already this year is high,» declared the president of APB.

«Everything indicates we will have the biggest recession probably since I’ve been alive. When there is a recession, the banking sector is deeply affected,» explained Fernando Faria de Oliveira.

«Each month in lockdown represents a huge decrease [in economic activity], and the probability that banks will return to negative results already this year is high,» stressed the APB president. «Banks will have to do everything to avoid complicated situations, but it will be very difficult,».

Faria de Oliveira explained the impact of the crisis on banks in this way: with more families and companies in difficulty, the level of default credit could increase considerably, leading to «a higher level of provisioning for banks». «What we have to admit is that banks need to manage their balance sheets very prudently,» he concluded.

Original Story: ECO News | News
Photo: Photo by Alfonso Romero /Free Images.com
Edition: Prime Yield

Portugal bank lobby calls state and EU action to avert bad loans

Portugal’s banking association (APB) is calling on the government and the European Union to stimulate the economy to prevent a sharp rise in bad loans as a result of the coronavirus crisis.

The country’s banking sector is still scarred from a debt crisis and spike in non-performing loans (NPLs) after a 2010-13 recession which led to the collapse of banks like Banif in 2015.

Portuguese banks have since battled to reduce NPLs, bringing them down to a total of €17.2 billion in December 2019, from a peak of €50 billion in June 2016.

«It is crucial to adopt measures to mitigate the effects of this public health situation on the ability of companies and families to continue to be able to guarantee the payment of their (credit) responsibilities,» Portuguese Banking Association head Fernando Faria de Oliveira told Reuters.

Portugal’s tourism-dependent, export-driven economy is wilting from the sudden drop in global demand, with more than 30,000 firms applying for government support to pay half a million workers as activities grind to a halt.     

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.

«It is already widely recognised that we will have a recession in the economy, which will probably be quite severe,» Faria de Oliveira said, adding it was «premature» to give estimates on NPLs resulting from the coronavirus crisis.

The Bank of Portugal has forecast that the country’s economy will shrink between 3.7% and 5.7% in 2020, against growth of 2.2% in 2019, as the coronavirus pandemic hits private consumption and investment and exports collapse.    

Faria de Oliveira said the «response of the European Union (EU) will be absolutely critical to fight this pandemic, in the short term, and to relaunch economies afterwards».

«Much deeper, even radical, action is expected from the EU,» he added, in order to avoid serious damage to companies and high unemployment.

Portugal will boost its credit lines for businesses struggling with the coronavirus outbreak to €4.2 billion, after a state aid package from the European Commission helped shore up the country’s finances.

Portugal’s banking sector was committed to supporting the economy in line with government decisions, as long as it does not jeopardise financial stability, Faria de Oliveira said.

The Portuguese government has approved a 6-month moratorium on the payment of instalments by households and companies.

Lisbon also gave state guarantees to €3 billion of credit lines to support companies, with a further €10 billion in the pipeline.    

Portugal’s banks have lifted their average common equity Tier 1 solvency ratio to 14.1% in 2019, from 7.8% in 2011, Faria de Oliveira said.

But although they are stronger to face «adverse shocks», their profitability is below the cost of capital, he added.

Original Story: Market Screener | Sérgio Gonçalves (Reuters
Photo: CGD headquarters
Edition: Prime Yield

Portugal’s NPL stockpile shrank €4.5 billion in the fourth quarter of 2019

According to the latest data released by Portugal’s Central Bank (BdP), the nonperforming loans (NPL) stock within the country’s banking system fell €4.5 billion during the fourth quarter of 2019.

The data can be found in the «Portuguese banking system – recent development» report, according to which the national NPL ratio also reduced in the end of the year, from 7.7% in the third quarter to 6.1% in the quarter ended in December. 

The fall in NPL to non-financial companies was from €3.7 billion to 12.3% and from €400 million to 3.7% for individuals.

Due to the crisis caused by the Covid-19 pandemic, the government has created a law that allows families and companies to suspend credit payments until 30 September.

However, these moratoria do not mean default by customers, nor will such unpaid credit have automatic implications for the banks’ bad debts, according to the authorities’ decision.

Original Story: ECO News | Lusa 
Photo: Photo by Hugo Humberto Plácido da Silva /FreeImages.com
Edition: Prime Yield

Coronavirus outbreak in Europe slowdowns collections on NPL securitizations

Measures to deal with the coronavirus outbreak in Europe will slow collections on non-performing loan (NPL) securitisations, according to a new report by Moody’s Investors Service. 

«Following the outbreak, investor sentiment is deteriorating, which will affect real estate prices, and courts are closed, which will delay collections, » said María Turbica Manrique, VP-senior credit officer at Moody’s. 

«These developments are negative for NPL transactions. » The Moody’s report shows that court appraisals, property inspections and auctions are frozen. Until courts return to normal activity, recoveries for NPL transactions will be delayed. 

«Real estate prices could deteriorate to a varying extent across jurisdictions, depending on the magnitude of the economic slowdown and the circumstances of the different property markets, » Turbica Manrique added. 

Italian issue NPL securitisations start from a weaker position in Italy, which had no house price inflation in 2019, compared with transactions in Ireland, Portugal and Spain, where house price inflation was in the 2.5%-5.0% range in 2019. Transactions’ cash flows depend on the timing and amount of collections, Moody’s notes.

«Measures imposed to contain the spread of the coronavirus are disrupting the operations of European judicial systems, which will delay NPL securitisations’ gross recoveries,» Turbica Manrique said. 

However, the report suggests that «the expected growth in NPLs in the wake of Covid-19 will reverse the previous trend». The stock of NPLs at a representative sample of European banks declined to €617.8 bn at the end of the third quarter of 2019 from €714.1 bn a year earlier. Within the sample of European banks, Italian institutions had the highest stock of NPLs at €127.1 bn, or 7.2% of their total loans. The NPL ratio for Greek institutions was also significant at 37.4%, with a stock of €74.5 bn.

Original Story: Property.EU | Isobel Lee
Photo: Photo by Vince Varga in FreeImages.com
Edition: Prime Yield

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