The next crash test for secured loan sales will be National Bank’s Symbol portfolio, which mainly comprises loans issued to very small enterprises.
The intentions of investment funds active in purchasing nonperforming loans portfolios in Greece, having placed some 1.3 billion euros in the market to date, will be tested in 2019, as Alpha Bank, National and Piraeus are planning fresh sales adding up to more than 6 billion euros.
These intentions are not only related to the nature of the portfolios up for sale and whether the loans included are secured against properties, but also to the results secured from managing the portfolios already transferred and whether expectations of the recovery of part of those household and corporate debts are met.
Talks on bringing down nonperforming loans are restricted to the reduction banks will achieve in the context of their commitments to the monitoring authorities; however, the issue is much broader.
While Greek banks’ nonperforming exposures had declined by 25.4 billion euros from their peak of 107.2 billion in March 2016 to 81.8 billion by end-2018, the reduction of the stock of bad loans does not mean that the debts are now being serviced. On the contrary, that figure concerns loans that may have changed hands but remain in the economy, as the households and corporations responsible for them have yet to reach a settlement as to their repayment. This is what will determine the success or failure of the project to slash bad loans – not just the banks’ financial reports.
Market professionals explain that despite the portfolio transfers implemented in 2018 – a year of mass sales – the secondary market has yet to reach the same pace. In spite of investors’ keen interest in buying NPL portfolios, as well as the licensing to date of 17 management companies, the results have not been reflected in the figures and investors’ returns have yet to be measured.
The same sources say the delay there is predictable, given that the market requires at least 18 months to mature. “The borrowers who up until now had been talking to banks or debt collection companies – and many debtors did not hold any such discussions at all as their loans were long past due – are now having to face the new reality, and this takes time,” as one market source put it.
Still, the long list of management companies licensed in the short period of less that two years has exceeded all expectations. In their assessments of the country’s economy, Greece’s creditors have referred to seven such companies as a realistic figure; that figure has long been surpassed, and the market is rapidly heading toward 20 companies, as at least three more applications are pending for approval by the Bank of Greece.
This glut also reflects reservations expressed by the market over the price levels in portfolio sales by Greek banks, which up until today have been the main tool employed to reduce NPEs. In the first year after the sales started at end-2017, the four systemic banks of Greece made eight transactions, while Attica Bank conducted another two.
More than half of the 1.3 billion euros invested by major funds (i.e., 769 million euros) went to pay for two sizable transactions concerning loans secured against realty. They were the Amoeba and Jupiter packages conceded by Piraeus and Alpha respectively – the former fetched revenues of 432 million euros and the latter 337 million. The prices achieved in those sales correspond to 33.5 percent and 29 percent respectively of the nominal value of the portfolios (the original capital without interest) and were perceived by the market as particularly high, raising expectations concerning secured loan sales.
The next crash test for secured loan sales will be the Symbol portfolio that National Bank is selling and which mainly comprises loans issued to very small enterprises. The nominal value of the portfolio amounts to 950 million euros and the binding offers tabled a few days ago will be assessed by the end of the month. The completion of the transaction and the price secured will indicate whether the NPL transfer market is displaying fatigue or not, and represent an evaluation of the recent framework for the protection of borrowers’ primary residence.
The next packages of secured loans will be put up for sale by Alpha Bank, which is planning the transfer of two such portfolios with a combined value of 3.8 billion euros. Piraeus is set to follow, and then National.
As bank officials explain, the key parameter for all such transactions is the accounting value based on which the bank has recorded each portfolio in its books; that usually incorporates the provisions made for the portfolio, which is why it is lower than the nominal value of the package.
The package sales will also see the entry of PQH, the single special administrator of the 17 banks that have been placed in receivership since the outbreak of the financial crisis, or in some cases earlier. PQH is starting with the sale of the first package of consumer loans worth 1.1 billion euros, but the target is much more ambitious and aims at the earliest possible clearance of the entire portfolio of 9 billion euros it has under its management.
The PQH bad loans include a big chunk of corporate debts that account for 50 percent of the company’s portfolio, with 70 percent of them secured against collateral. However, it is far from certain that this portfolio will attain the prices the banks’ packages have achieved, as there can be no comparison between two sets of different offerings.
The loans under PQH management are not just nonperforming, but have recorded very long delays, for many years, and most of the indebted enterprises are either not sustainable or do not exist at all anymore. A similar difficulty is recorded in the management of the now-defunct ATEbank’s portfolio due to its exposure to the agricultural sector, which renders collection particularly difficult.