The agreement between Piraeus Bank and Swedish group Intrum is one of the biggest foreign investments and the biggest Swedish investment in Greece (410 million euros). With a portfolio of 27 billion euros, Intrum Hellas is the first independent credit management company of this scale in the country and aspires to change the domestic nonperforming loans market by providing solutions to benefit both individuals and businesses, ultimately benefiting the economy, as the heads of the two groups point out.
Speaking to Kathimerini, Christos Megalou, Piraeus’ chief executive officer, and Mikael Ericson, Intrum’s chairman and CEO, expressed satisfaction at the partnership – which was concluded in record time, given its scale. They also anticipate multiple benefits, both for Piraeus – which will improve its capital adequacy ratios and enhance efficiency in the management of NPLs – and for Intrum Group – which, through Intrum Hellas, dynamically entered a new and growing market, with significant potential.
Megalou and Ericson say there is good news for debtors as well. With a history stretching back a century, Intrum has vast experience in credit management and knowhow, and employs modern methods, providing debtors with solutions that are tailored to their profile and capacity.
“The agreement between Piraeus and Intrum was concluded in a surprisingly short time, less than five months after it was announced,” Megalou said, adding that the agreement between the Swedish firm and Italy’s Intesa – which was of a similar scale and involved a similar number of staff – took twice as long. “We were able to accomplish this because both parties were target-focused. We wanted to make fast progress in order to be able to move onto producing results,” Ericson pointed out.
Speaking about the impact of the agreement with Intrum on Piraeus Bank’s profitability, Megalou stressed that the Greek lender “went into profitability in mid-2018, thanks to the realization of its business plan. The agreement with Intrum is positive to pre-provisions results and is expected to considerably improve the bank’s cost-to-income ratio.”
The agreement, Megalou said, accomplishes “more efficient management and a more cost-effective reduction of the bank’s NPLs, in line with the model of similar undertakings already in operation in European countries with a high NPE stock.”
“Moreover, Piraeus retains all the benefits from the recoverability of the portfolio to be brought under management, inasmuch as the loans that Intrum Hellas shall be managing remain on its balance sheet. In addition, the sank holds a 20 percent stake in Intrum Hellas, one of the biggest receivables management companies in Europe, with positive business development prospects,” he added.
As Ericson pointed out, Intrum has already entered the Greek market through the acquisition of loan portfolios sold by banks, which will also be brought in-house for servicing by Intrum. “We are proud of Intrum in Greece and its people who have come from Piraeus. We are here to stay, in a market which is growing. Banks may be removing bad loans from their balance sheets but these loans remain here and need to be serviced. For us, then, the market is much bigger than the 82 billion euros of nonperforming exposures currently seen on banks’ balance sheets. To this amount, one should add at least 10 billion euros which have already been acquired by funds and which are under service,” he said.
According to its CEO, Intrum “is a European credit management company with presence in 24 countries in Europe with a long-term investment horizon, and a strong and solid client offering in the markets in which it operates”.
What does this mean for Piraeus and the goals it has set vis-a-vis the SSM? “The consistent over-performance demonstrated by Intrum shall considerably enhance both the efficiency and the cost-effectiveness of management for the reduction of Piraeus’ bad loans. In this context, the prospects for the recovery of non-performing exposures are enhanced, thus facilitating the achievement – and possibly the over-achievement – of the goals set by the bank for the reduction of NPEs vis-a-vis the SSM,” Piraeus’ CEO added.
Megalou expects that a 10 percent over-performance versus the targets which Piraeus has committed to reach by 2021 vis-a-vis the SSM may translate into an increase of the total positive impact on the bank’s capital in the region of about 35-40 basis points.
Asked what more Intrum can do compared to the efficient – as both parties admit – recovery banking unit of Piraeus, which the Swedish group has now acquired, Megalou and Ericson said that, first of all, “the amount of the investment in the Bank’s unit, which unit was valued at 410 million euros, reflects the high quality of the company and through the joint venture, the Greek market will be served a very strong client offering ”. They expect that when Intrum’s knowhow is added on top of this foundation, the potential shall just multiply.
As the head of the Swedish group pointed out, Intrum has developed practices and technology which allow it to have a long-term view of its clients and of the economies in which it operates. “For us, data provide a key element and that is why we place emphasis on analysis,” he said, meaningfully adding that “with 100 years of experience, we do know a bit better”. Ericson indicatively referred to the balance that the company keeps between the available resources and the potential for collection, the emphasis on amicable solutions which result from the sincere cooperation with the debtor, and the employment of data in such manner as to reach viable solutions within the borrower’s capacity.
Intrum aspires to play an important role in the NPL servicing market through the “Hercules” scheme, too. As Ericson said, the Finance Ministry’s APS mechanism for the management of non-performing loans, initially in the region of 30 billion euros, provides for the participation of independent management companies (servicers). The fact that Intrum Hellas is an independent large-scale servicer is an advantage with regard to the rating of the bond issues, according to Megalou and Ericson. Large-scale transactions require substantial infrastructure on the part of the servicers who shall undertake the task to “run” them, they added.
As regards the plan for the reduction of NPLs which Piraeus submitted to supervising authorities in March 2019, Megalou said it envisages a non-organic reduction of NPEs in the region of 7 billion euros, of which 6 billion will be realized through securitizations. Combined with the organic reduction, the bank’s NPEs will be reduced by 15 billion euros by end-2021.
This reduction will be carried out by also making use of the Finance Ministry’s mechanism as well. “Piraeus will employ the APS mechanism as soon as it becomes available and the final terms are assessed. The availability of a systemic solution for NPEs is exceptionally positive for the bank and the banking system in general. Prerequisites for the successful employment of the APS include the manageable cost of collaterals, the zero effect on the bank’s capital of the senior tranche which shall be backed by state guarantee, and anything else that might facilitate the attraction of investors for the securitizations which shall be carried out,” Megalou said.
According to Ericson, apart from its key-partner in Greece, Piraeus Bank, Intrum will further develop its current client relationships and also use the platform for building new relationships. Announcements have already been made about securitizations and sales in the region of 25 billion euros by the banks.
Asked whether the bank is planning any new initiatives to draw funds from the markets, Megalou said that “with the improvement of the investment climate in Greece, bonds of all types shall provide the basic tools to be used both by Piraeus and by the other Greek banks in their dynamic comeback to the capital markets. The recovery of the Greek economy shall contribute towards markets opening to Greek securitizations, too, which are expected to recover after the activation of the Asset Protection Scheme”.
As regards the price rises of recent bond issues, both by Piraeus and by the National Bank of Greece, Megalou said that “the rise of the price of both banks’ securities in the secondary market demonstrates that investors’ interest in Greek securities remains strong, while the reduction in the capital raising costs results both from systemic and from individual factors”.
He believes that the potential upgrading of the country’s credit rating by the rating agencies “considerably contributes towards the reduction in the capital raising costs for banks, enhances investors’ trust in Greek assets, creates the appropriate environment for the expansion of the number of counterparties interested in transacting with Greek banks, and considerably improves the value of collateral used by banks in their transactions”.
According to Megalou, “Piraeus shall decisively continue to deleverage the risk items on its Balance Sheet, the goal being to arrive at internationally accepted levels, thus a single-digit NPE ratio as a percentage of pre-provisions loan portfolio. Moreover, the Bank intends to further enhance its capital base, ensuring that it shall be about 2 percentage points higher than the supervisory capital requirements”.
In the first half of 2019, Piraeus Bank proceeded to two significant changes: the issue of a Tier 2 bond, the first one to be undertaken by a Greek bank in the last ten years, and the strategic partnership with Intrum, as Megalou pointed out. At the end of June, the bank’s pro-forma total capital adequacy ratio came to 15.7 percent and to 13 percent on a Basel III fully-loaded basis. “In Piraeus we remain focused on the generation of capital with organic means and we continue to optimize the composition of the bank’s balance sheet,” he added.