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

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

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

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

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

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

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

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

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