NPL&REO News

NPL pile

Banco Montepio and BPI to sell 200 million in NPL

Banco Montepio and BPI are in the market to sell non-performing loan portfolios with a book value of more than €200 million, according to information gathered by ECO from market sources.

Banco Montepio’s so-called “Zêzere Project”, with a book value of €120 million and launched last week by KPMG, includes two tranches of non-performing loans (NPLs): a secured tranche (with guarantees) worth €57 million, corresponding to 120 individual debtors and another 150 from small and medium-sized enterprises (SMEs), with collateral consisting of real estate valued at around €80 million; and another unsecured tranche worth €63 million of problematic SME loans, 60 per cent of which are insolvent.

BPI, meanwhile, has the “Copper Project”, a toxic loan portfolio worth €85 million, of which 62 million are unsecured loans, 12 million are secured loans and another 11 million are what are known in financial jargon as single names.

None of the banks would comment on the deals.

Original Story: ECO | Author: Alberto Teixeira
Translation and edition: Prime Yield

Banks increase profitability and capital and improve efficiency in 2023

In 2023, the banking sector became fatter. According to the Bank of Portugal, profits increased due to interest income, and as a result profitability grew, capital was strengthened and the efficiency ratio also improved.

Banking profitability “continued its growth trajectory with return on equity (ROE) standing at 14.8 % in annual terms”, 6.14 percentage points more than in 2022, says the Bank of Portugal in its quarterly analysis of the Portuguese banking system.

This growth reflects the increase in net interest income (the difference between interest paid by customers and interest paid by banks) due to the increase in interest rates by the European Central Bank (ECB) to curb inflation.

Return on assets (ROA) also improved, standing at 1.28% (up 0.59 percentage points).

Although slight, the cost of credit risk increased by 0.16 percentage points to 0.45%, due to the strengthening of credit impairments by the banks.

In the note from the supervisor led by Mário Centeno, for banks as a whole, it is also stated that the cost-to-income ratio (dividing operating expenses by operating income to obtain the cost benefit) improved, falling 13.7% compared to 2022 and standing at 36.9%. The increase in operating income contributed to this, as did the improvement in net interest income.

According to the Bank of Portugal’s note, asset quality also improved. The non-performing loans (NPL) ratio fell 0.2 percentage points to 2.7%, an evolution that reflects not only “the reduction in NPLs” but also “the increase in productive (risk-free) loans”.

In this context, the gross NPL ratio for companies stood at 5% (down 0.8 percentage points), due to the reduction in NPL. In the private segment, the gross NPL ratio remained at 2.4%.

In terms of capital, both the total own funds ratio and the Common Equity Tier 1 (CET1) ratio increased by 0.7% to 19.6% and 17.1% respectively.

The average risk weight also improved, decreasing by 0.6% to 42.7%, due to the importance of the lower risk components in assets.

Original Story: Expresso | Author: Isabel Vicente | Data: 27.03.2024
Edition and translation: Prime Yield

Coimbra Shutterstock

Salaries aren’t enough to pay mortgages in more than 80% of Portuguese municipalities

Mainland Portugal has only 45 municipalities – less than a fifth – where half the families have the minimum income needed to buy a house on credit. According to data from the Ministry of Economy, the median income in Portugal (1,091 euros) is only enough for half of what is needed to pay the bank: 2,063 euros.

The analysis by the Strategy and Studies Office, quoted by the Jornal de Negócios, also pointed to the difficulties felt not only in the metropolitan areas of Lisbon and Porto, but also in the rest of the mainland.

Along with Lisbon, the Algarve region has seen its housing accessibility deteriorate, and is even the region with the lowest levels of accessibility. In the Central Alentejo, the Beiras and Serra da Estrela concentrate more than a third of the municipalities where most families are able to meet their mortgage instalments.

This housing affordability index compared, at a local level, the median income of families with the monthly effort required to cover a credit instalment plan.

The study concluded that in only 45 of the 278 mainland municipalities (16.18%) does the median income manage to cover the value of the instalments required for the houses – these are mainly concentrated in the interior, except for four municipalities in the Leiria region and two in the Coimbra region. Alentejo Central has the highest number of municipalities with affordability – 10 – with another seven in the Beiras and Serra da Estrela region.

Another reality is found in Vila do Bispo, in the Algarve, the municipality with the worst affordability and where half of the families don’t have enough income to cover even a third of the instalment that would be due on a loan.

Original Story: Executive Digest | Author: Press
Edition and translation: Prime Yield
Photo: Shutterstock

Three investors in the race to buy DoValue Portugal

The Italians from DoValue are leaving the Portuguese bad debt market and have three investors looking to buy the management company, which has €500 million in assets under management.

In addition to LX Partners’ €4 billion deal, another operation is underway in the Portuguese distressed debt market. The Italian group DoValue, controlled by Fortress and Bain, has already selected the three candidates to submit binding offers for its non-performing loans(NPL)  and real estate management business in Portugal, which has €500 million in assets under management.

ECO understands that a shortlist of three candidates has already been selected, who will have to submit binding offers in the coming weeks. DoValue will then select the investor with whom it will enter into exclusive negotiations to reach a final agreement.

This follows a phase in which more than a dozen investors expressed interest in the transaction. According to DoValue Portugal, one of the reasons for the investors’ interest is related to the restructuring process that began a year ago “to transform the company into a boutique servicer, focusing on various strategic services for the regularisation and management of complex assets”. “In this context, we have acquired new clients, also with a strategic role, thus accumulating a wide and relevant experience for this specialisation,” the company said.

To date, DoValue Portugal’s activity has mainly involved the management of problematic assets, including a portfolio of real estate and NPL from Oitante (initially worth €1.5 billion, but now with a higher residual value) and a portfolio of NPL from Davidson Kempner. Although the final results for last year are not yet known, it had a turnover of €3.8 million by September. In 2022, it made a loss of almost €3 million after revenues of 7.1 million – compared to revenues of €21 million in 2019.

The Italians of DoValue entered the Portuguese market in 2019 with the acquisition of Altamira Portugal, which two years earlier had bought the business unit responsible for managing the real estate assets and credit portfolio of Oitante – the vehicle created to hold the assets of the former Banif that Santander didn’t want to buy. In 2021, Altamira Portugal was renamed DoValue Portugal.

Listed on the Milan stock exchange, DoValue claims to be the largest servicer in southern Europe. The group is controlled by Fortress and Bain, which own more than 40 per cent of the company.

Original Story: ECO | Author: Alberto Teixeira
Edition and translation: Prime Yield

Porto night

DoValue prepares to exit the Portuguese NPL market

After LX Partners, it’s now the Italians at DoValue who are preparing to exit the Portuguese distressed debt market by selling the management company, which has €500 million in assets under management.

More investors are leaving the distressed debt market in Portugal. After LX Partners, whose €4 billion deal will be further developed at the end of the month, it is now the Italian group DoValue, controlled by Fortress and Bain, which is moving ahead with the sale of its non-performing loans (NPL) and property manager in Portugal, with €500 million in assets under management and around 60 employees, according to information gathered by ECO.

The process of selling DoValue Portugal, which the company confirmed to ECO is underway, is being managed by PWC Spain, according to the same sources.

According to DoValue Portugal, “the sale process is progressing positively and already has the interest of more than a dozen potential buyers”.

One of the reasons for the high level of interest, according to the company, has to do with the restructuring, that began in the first quarter of 2023, to “transform the company into a boutique servicer, focused on various strategic services for the regularisation and management of complex assets”. “In this context, we have been attracting new clients, also with a strategic role, thus accumulating a broad and relevant experience for this specialisation,” DoValue Portugal told ECO.

DoValue Portugal’s business has declined in recent years, with sales falling from €21 million in 2019 to 7.1 million in 2022, according to the InformaDB company database. It closed 2022 with losses of almost €3 million. Until September this year, sales totalled €3.8 million, the company told ECO.

The Italians entered the Portuguese market in 2019 with the acquisition of Altamira Portugal, which two years earlier had bought the business unit responsible for managing Oitante’s real estate assets and credit portfolio – the vehicle created to hold the assets of the former Banif that Santander didn’t want to buy.

At the time, Altamira also took over the management of a batch of Oitante’s real estate assets and NPL  totalling €1.5 billion, a portfolio that now has a higher residual value.

In addition to the agreement with Oitante, DoValue Portugal also manages a portfolio of non-performing loans for Davidson Kempner.

Listed on the Milan stock exchange, DoValue claims to be the largest servicer in Southern Europe. The group is controlled by Fortress and Bain, which own more than 40 per cent of the company. Both funds have other investments in Portugal. For example, Fortress is preparing to acquire a €230 million NPL  portfolio from Banco Montepio, ECO announced at the end of last year.

Edition and translation: Prime Yield
Source: ECO | Alberto Teixeira
Photo: Shutterstock Photo

Slowdown in property prices is a risk for NPL in Portugal, warns DBRS

DBRS talks of a prolonged period of inflation and high mortgage rates that could put pressure on the system, especially given the vast majority of variable rate mortgages in the Portuguese economy.

DBRS Morningstar classifies the Collateral Performance Outlook for 2024 (the real guarantees attached to defaulted loans) in Portugal as “Stable”. The 2024 Credit Rating Outlook is also classified as “Stable”.

Similarly, the Portuguese Non-Performing Loans (NPL) securitisations rated by DBRS performed well, with all the notes rated by the agency (relating to four operations) having been repaid in full.

DBRS points to potential risks in future transactions. These include the slowdown in residential property prices in Portugal following the rise in interest rates. Property prices still increased by 8.7% in the 2nd quarter of 2023 compared to the previous year, compared to 13.2%  in the 2nd quarter of 2022, it points out.

DBRS speaks of a prolonged period of inflation and high mortgage rates that could put the system under pressure, especially given the vast majority of variable rate mortgages in the Portuguese economy.

Vulnerabilities are becoming visible, with new measures introduced in September 2023 to support households facing greater financial pressure, says DBRS.

“As emphasised in our commentary on foreclosures and bankruptcies, longer legal deadlines and the backlog of foreclosure and bankruptcy proceedings could affect performance and place increased importance on the manager’s ability to achieve out-of-court solutions,” the analysis reads.

Regarding the European NPL securitisation market, DBRS says that “in terms of credit performance, the situation last year leaned more towards the negative, but still without any obvious general trend”.

“Most of the well-performing transactions, such as Irish, Portuguese, more recently Italian and UK, have continued to deleverage, with a healthy level of loan recoveries and note repayments; however, older Italian and Spanish NPL securitisations continue to struggle to reverse their past performance,” says DBRS in its European NPLs 2024 Outlook.

The European NPL market slowed down significantly in 2023, says DBRS, which adds that none of the transactions suspended after the European Central Bank began raising interest rates resumed during the year.

“With the exception of some concentrated issuance in the final weeks of the year, activity in this asset class was the quietest since issuance resumed in 2016 following the Great Financial Crisis,” says DBRS.

The analysis focuses on Asset-backed Commercial Paper, Residential Mortgage-Backed Security, and Auto.

NPL securitisations outside government asset protection programmes, seen in jurisdictions such as Cyprus, Ireland, Portugal, Spain and the UK, depend on European securitisation market conditions. Here DBRS Morningstar expects “public issuance of senior notes during 2024 to be broadly in line with what we saw during the post-pandemic, pre-Ukraine invasion period (2021-2022) at 200 to 400 million euros per year, given that interest rates are now stabilising”.

As in 2023, the year could also see securitisations of smaller NPL portfolios, re-performing loan portfolios (which have returned to performing status after ceasing to be so) that can be sold from existing securitisations and other more esoteric mixed asset class transactions involving NPL and loans with a low probability of repayment.

For 2024, the rating agency expects the rating outlook to remain stable in all jurisdictions covered by the analysis, “with stable credit outlooks for most of them”.

“We maintain our negative credit outlook for Spain and Italy – the two jurisdictions where we have seen difficulties in some of the transactions assessed over the past few years, including in the face of prospects for delayed recovery and, in some cases, a downwardly revised total recovery amount.”

“An important factor to consider for the European NPL space in 2024 will be the recent renewal of Greece’s Hellenic Asset Protection Scheme (HAPS), which was approved on 4 December 2023 with a total guaranteed amount of €2bn of securitised bonds and a new expiry date of 31 December 2024 (unless extended by subsequent decree). We believe that many of the Greek banks – both systemic (Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank) and other non-systemic banks – will take advantage of this renewal and securitise some or all of their NPL stocks before the guarantee expires,” says DBRS.

Edition and translation: Prime Yield
Original Story: Jornal Económico | Maria Teixeira Alves
Photo: Bigstock Photo

Bank of Portugal imposes capital buffer for mortgages at four large banks

The Bank of Portugal has told Millennium bcp, Novo Banco, Banco BPI and the local unit of Spain’s Santander, to create a new capital buffer equivalent to 4% of their loan portfolios that are collateralised by home mortgages.

It said in a statement the measure addressing “sectoral systemic risk” would come into effect on Oct. 1, 2024, and be reviewed at least every two years.

“This instrument has a preventative nature and aims to increase the resilience of institutions in the face of a potential future materialisation of systemic risk in the residential real estate market in Portugal,” it said.

The central bank said the four banks, which account for 61% of total home loans, were using internal ratings-based approach to calculate risk-weighted assets, which leads to lower evaluations than those of banks using the standard method.

BPI is owned by Spain’s Caixabank and Novo Banco by the U.S. fund Lone Star.

According to central bank data, all lenders in Portugal brought total non-performing loans (NPLs) down to €9.69 billion, or 3.1% of total credit, in June from the peak of 17.9% in June 2016.

The NPL ratio of loans to individuals was just 2.4% in June, despite rising interest rates and high inflation.

Original Story: Reuters |Staff
Photo: Bank of Portugal headquarters
Edition: Prime Yield

BCP puts a €80 million NPL and REO portfolio for sale

The sale is part of the bank’s normalisation plan, which had profits of €650.7 million by September.

BCP has put a new portfolio of problematic assets on the market with a book value of €80 million, according to Eco.

The “Grace project” includes around €64 million in guaranteed non-performing loans (NPL) and €15 million euros in real estate assets (REO), according to sources contacted by the newspaper.

The sale is part of the bank’s normalisation plan, which had profits of €651 million by September.

The aim is to cleanse the balance sheet of problematic assets. The digital newspaper explains that in September BCP had €790 million in NPL and a further €1.23 billion in non-performing assets (NPE), a reduction of almost €400 million year-on-year, partly due to the sale of the ECS funds at the end of 2022, a portfolio of luxury hotels and other properties.

The NPE ratio fell from 3.7% to 3%, and the chairman, Miguel Maya, ruled out any problem with a systemic dimension in a context of rising interest rates.

Original Story: Jornal de Negócios |Negócios 
Photo: Millennium bcp website
Edition and translation: Prime Yield

IMF advises banks in Portugal to ‘cushion’ bad loans with profit growth

The International Monetary Fund (IMF) is advising Portuguese banks to avoid ploughing all of their rising profits into dividends, instead calling for a strengthening of capital reserves as a “cushion” against a possible rise in bad debts and bankruptcies.

“Banks need to be capitalised, including Portuguese banks, and we suggest that in the current phase banks increase their own funds and capital reserves and refrain, as far as possible, from paying out all of the increase in profits in dividends,” said the IMF’s European director, Alfred Kammer, at a meeting with European journalists in Brussels.

At a time when banks such as BCP, Novobanco, Santander Totta and BPI have almost doubled their profits in the first nine months of the year compared to the same period last year, the IMF’s regional director warns that “times are going to get tougher” and that “additional buffers” are needed.

“As a result of the post-pandemic adjustment, we’re going to see an increase in bankruptcies, we’re going to see an increase in non-performing loans, and that’s all over Europe, it’s not a specific problem for Portugal,” he adds.

According to Alfred Kammer, this is a “normal” situation given the tight monetary policy with high interest rates, now stabilised by the European Central Bank, which is making access to finance more difficult and causing families and companies to pay more for their loans, especially housing loans.

“These upside risks are normal, […] but we also advise the Portuguese authorities to increase their systemic capital reserves to prepare for an increase in non-performing loans and bankruptcies,” he adds.

He warns that “as financial conditions tighten, financial tensions may emerge”, so “countries should closely monitor banks’ credit quality, leverage and liquidity risks, and increase capital reserves”.

The Regional Economic Outlook for Europe states that “although the European banking system has high levels of solvency and liquidity, banks in some countries hold substantial securities that could lead to a significant depletion of their own funds”.

This is the case in Portugal, which has one of the highest levels of variable-rate mortgages in Europe.

Nevertheless, Alfred Kammer is optimistic about the Portuguese economy, noting that “Portugal has had strong growth, reflecting the recovery in tourism” and also “efforts” to combat unemployment and invest in education.

“I think this is also reflected in our positive forecast for Portugal,” he adds, alluding to the fact that Portugal’s figures are better than those of the eurozone.

“Portugal has been very determined in the last three years to create buffers […] and that is certainly reflected in the positive assessment for Portugal and that makes us generally optimistic for growth in Portugal in the medium term, but of course in the short term it is suffering at the same time a slowdown in Europe […] and that is also reflected in our figures,” says Alfred Kammer.

The IMF expects the Portuguese economy to grow by 2.3 per cent this year and 1.5 per cent in 2024, with inflation falling to 5.3 per cent in 2023 and 3.4 per cent in 2024.

Original Story: CNN Portugal | Lusa /AM
Photo: IMF – Facebook
Translation and edition: Prime Yield

Five contenders in the race for the bad debt deal of the year in Portugal

LX Partners has put €4.2 billion euros of non-performing loans (NPL) and the servicer Algebra up for sale. It’s the deal of the year in Portugal and there are five interested parties.

The NPL of the year in Portugal has attracted five bidders, according to information obtained by ECO from two market sources.

The consortium formed by Cerberus/Intrum/FS, Balbec, Carval, LCM and Bain has submitted non-binding proposals for the purchase of the €4.2 billion of problematic loans and the Algebra platform, which is also part of the deal.

LX Partners has put its entire NPL business in Portugal up for sale in a process codenamed “Projeto Cascais” and led by KPMG.

At stake are NPL that the fund has purchased from Portuguese banks in recent years. Out of a gross value of €4.2 billion, approximately €4 bilion are unsecured loans and another €200 million are secured loans. The deal also includes the servicer responsible for managing this portfolio, Algebra Capital.

LX Partners is an investor focused on distressed debt and NPLs, private equity and real estate. In Portugal, in addition to the NPL business, it owns Five Credit (a digital platform for alternative loans for SMEs), the management company Circle Capital and invested €125 million in Smart Studios (studios for students) in 2018.

The “Cascais Project” can be considered the biggest of this year, which has been marked by a strong cooling of the market. The few portfolios that have entered the market this year are small in value, rarely exceeding €100 million. One of the largest cases is that of Banco Montepio, which has a portfolio of distressed assets valued at around €230 million, including, among other things, ongoing debt and cash in court.

The main reason for this cooling is the “big clean-up” that the banks have carried out in recent years. Five years ago, the banking system was faced with €31.8 billion of NPLs, equivalent to 13.6% of total loans. By the end of June, the ratio had fallen to 3.1%, below the “magic number” of 5%, totalling €9.7 billion, according to the latest data from the Bank of Portugal. Net of write-downs, NPLs totalled €4.2 billion.

Original story: ECO |Alberto Teixeira
Photo: Hugo Humberto Plácido da Silva on FreeImages
Edition and translation: Prime Yield

€4.6 billion in NPL for sale on the market

Caixa Geral de Depósitos (CGD), Montepio and Lx Partners are trying to clear problem assets from their balance sheets.

Anticipating an increase in the NPL ratios among their portfolios, at a time when the risk of default among families has also risen, fuelled by rising interest rates, banks and management companies are looking to clear bad loans from their balance sheets. Caixa Geral de Depósitos (CGD), Montepio and Lx Partners have €4.6 billion up for sale.

CGD has the Pluto portfolio worth €150 million, Banco Montepio has the Côa portfolio worth €233 million and LX Partners has the Cascais portfolio worth €4.2 billion, according to a report in Jornal Económico.

According to the Bank of Portugal (BdP), although the gross NPL ratio remained unchanged at 3.1% in the second quarter (the NPL ratio for individuals also remained at 2.4%), banks increased the ratio of loans in ‘stage 2’ for individuals to 9.5% (compared to 9% in the first quarter).

The increase is most significant for housing loans, where the ratio rose to 9.1%, compared to 8.4% in the first quarter.

The ‘stage 2’ loan ratio refers to loans where banks believe there is a higher risk of losses due to customer default. The stage 2 ratio for consumer and other loans fell to 10.7% in the second quarter from 11.1% in the first quarter.

Original Story: Jornal Económico | Maria Teixeira Alves
Photo: Photo by Svilen Milev on FreeImages
Edition and translation: Prime Yield

Housing loans: NPLs total €1 billion

The volume of non-performing loans amid mortgage credit in Portugal stood at €1 billion at the end of June, stabilising compared with the previous quarter, representing 1.1% of the total volume of such loans.

In the second quarter, the volume of non-performing loans (NPLs) held by the Portuguese financial system fell slightly compared with the previous quarter, totalling €6.3 billion, or €100 million less than the €6.4 billion recorded at the end of March. The decrease is more significant in year-on-year terms, with non-performing loans shrinking by €1.2 billion compared to the €7.5 billion recorded at the end of the second quarter.

This is in the context of a decline in the total volume of credit held by the banking sector, which fell from €226 billion at the end of June 2022 to €207.9 billion in the same month of 2023. On a quarterly basis, the trend is also downward, with total loans standing at €209.6 billion at the end of March.

As a result, the NPL ratio in the Portuguese financial system continued its downward trend over the past year, falling by 0.2 percentage points (p.p.) between June 2022 (3.3%) and the same month in 2023 (3.0%), although it remains one of the highest in Europe, above the EU average (1.8%).

In the quarter ending in June, NPLs to households totalled €2.2 billion, of which €1 billion related to loans for house purchases. However, these figures reflect some improvement compared with the stock of NPLs in the same categories a year earlier, when NPLs to households totalled €2.4 billion, of which €1.1 billion were for house purchase.

Original Story: Barómetro APEMIP |  Staff
Photo: BigStock Photo
Translation and edition: Prime Yield

Non-financial sector debt falls to 806.6 billion euros in July

The indebtedness of the non-financial sector (NFC – public administrations, companies and private individuals) fell by €400 million in July compared to June this year, totalling €806.6 billion, the Bank of Portugal (BdP) said.

Of this total, €440.6 billion related to the private sector (private companies and individuals) and €365.9 billion to the public sector (public administrations and public companies).

In July, private sector indebtedness fell by €1.4 billion, with the indebtedness of private companies falling by €1.3 billion, essentially to foreign countries (€900 million) and to the financial sector (€400 million), in the form of short and long-term loans.

Household indebtedness fell by €100 million, mainly to the financial sector.

As for public sector debt, it increased by €1 billion.

According to the BdP, “this increase was mainly external (€900 million), essentially due to the issue of short-term debt securities.”

In year-on-year terms, compared to July 2022, the indebtedness of private companies and the indebtedness of individuals grew by 0.4% compared to the same month in 2022.

“However, this increase was lower in both sectors than in June 2023, by 0.3 and 0.5 percentage points respectively,” notes the central bank.

The BdP updates its statistics on financial sector indebtedness on 23 October.

Original story: CNN Portugal | Agência Lusa 
Photo: Big Stock Photo
Edition and translation: Prime Yield

BCP puts NPL for sale in the face of rising insolvency warnings

DBRS warns of the impact of the increase in insolvencies on Portuguese banks’ non-performing loans (NPL). BCP sells another portfolio after selling the Corporate Restructuring Fund.

BCP has put a portfolio of NPL worth €65 million on the market, according to information gathered by ECO from a market source. This is the “Light Project” that the bank led by Miguel Maya put up for sale last month and which includes loans in default and unsecured.

The year 2023 has been marked by a low volume of NPL transactions in the Portuguese market, after the national banks made a huge effort to clean up their balance sheets in recent years, which allowed them to reduce their NPL levels to 3%.

Even so, in the case of BCP, which declined to comment on the operation, the trend of reducing balance sheet risks continues. As has been the case with the rest of the banking sector.

Meanwhile, Novobanco revealed in its report and accounts for the first half of the year that it had also sold its position in the restructuring fund with a gain of €4.3 million. It seems that BCP and Novobanco sold their positions to Oxy Capital, the fund’s management company, while Caixa Geral de Depósitos and Banco Montepio will launch an organised sale process this month.

Other banks are also carrying out NPL operations. For example, Santander Totta sold three portfolios – Pool 58, 59 and 60 – with a total value of around €130 million. These portfolios include secured and unsecured mortgage loans.

At BPI, the “Citrus Project” involved the sale of a portfolio of problematic secured and unsecured loans also worth around €130 million.

Original Story: CNN Portugal | Alberto Teixeira 
Photo: Millennium bcp website
Edition and translation: Prime Yield

Portugal approves 30% cut in mortgage rates for struggling borrowers

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

Banks sell another restructuring fund after millionaire ECS deal

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

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

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

Consumer credit halted in June

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

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

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

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

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

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