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npl-reo Market News: Spanish Real Estate Intelligence

Bad Debts Continues to Fall, But Portugal’s Banks Still Have Another €30-Billion Worth
3 January 2019 Banks are pursuing efforts to clean up their balance sheets, as the industry attempts to unload much of the bad debt that has accumulated on the banks' books since the financial crisis. Since then, those banks have already sold off €19.2 billion worth of non-performing loans, the Bank of Portugal reported. Bad debts are a heavy burden for Portugal’s banking sector. That burden is slowly getting less onerous, however, as the level of non-performing loans (NPLs) continues to decline gradually quarter after quarter, according to data from the Bank of Portugal. Nonetheless, even after Portugal’s banks have sold or recovered 19.2 billion euros worth of these defaulted loans since the peak, they still have another €30 billion of bad debts on their books and no immediate solution. "In the third quarter of 2018, the NPL ratio fell by 0.4 percentage points to 11.3%, benefiting from a 1.3-billion-euro (4%) reduction in the stock of non-performing loans," the Bank of Portugal revealed. "The ratio fell more significantly for individuals," it noted. Portugal’s banks thus managed to maintain the recent trend of reducing their exposure to non-performing loans, as the total level of non-performing loans fell from its high in June 2016 by 19.2 billion euros. The NPL ratio declined by 6.6%. The Bank of Portugal pointed out that the drop reflects "a 38% reduction of the total NPL stock." In other words, in spite of the significant decrease over a period of just over two years, the banks have yet to reach the half-way mark. Another €30 billion in bad debts still requires a solution. Portugal’s banks reached the 20-billion-euro mark at the end of last year. Almost all of the banks are making efforts to sell off or otherwise reduce their bad debts, and Novo Banco contributed a significant part of that total, selling a portfolio of bad debt valued at 2.15 billion euros.

With fewer provisions, "profitability increases significantly."

Faced with the fall in exposure to bad debts, in addition to an increase in the coverage ratios for the remaining NPLs, banks have been reducing their provisions. The reduction is driving an increase in the sector’s profitability. "In the first three quarters of 2018, the profitability of the banking system increased significantly," says the Bank of Portugal, noting that "return on equity increased by 3.9 percentage points and ROA increased by 0.4 percentage points." "The positive evolution of profitability in the first three quarters of 2018 compared to the same period of the previous year mainly reflected a decrease in the flow of provisions and impairments (-644 million euros, -32%) and, to a lesser extent, a reduction in costs (-398 million, -9%)," the banking supervisor, which is led by Carlos Costa, added. "The reduction in costs with impairments and provisions contributed around 22 basis points to the increase in the ROA in year-on-year terms, with the reduction in operating costs contributing 14 basis points," it added, adding that "the contribution from net interest income to ROA has remained relatively stable over the same period, as has the contribution of net commissions. " Original Story: Economia Online - Paulo Moutinho Translation: Richard Turner
 
Novo Banco Finalises Sale of €2.15 Billion in Bad Debts
27 December 2018 The bank led by António Ramalho signed an agreement with KKR and LX Investment Partners to sell a portfolio of bad debts valued at 2.15 billion. The sale is expected to conclude at some point in the first semester of 2019. The sale is official. Novo Banco sold a portfolio of bad debts comprising 102,000 contracts with a total value of 2.15 billion euros to KKR and LX Investment Partners. The process should be completed during the first half of 2019, the bank said in a statement to the CMVM. "Novo Banco notifies that, upon completion of a competitive sales process, Novo Banco and Best entered signed an agreement for the sale of a portfolio of non-performing loans (NPLs) and related assets (Project Nata) with a pool of funds managed by KKR and LX Investment Partners. The portfolio comprises approximately 102,000 contracts with a total value of 2.15 billion euros, subject to the usual adjustments in these transactions up to the completion of the same," the note reads. The news confirms a report by ECO in mid-December, which pointed to the likelihood of the sale of the largest portfolio of NPLs ever in Portugal. However, the actual value of the portfolio is higher than the initial estimates of  €1.75 billion (+€400 million), as adjustments to the portfolio widened the scope of the portfolio of bad debts. Given the size of the sale, the level of Novo Banco’s bad debts is expected to fall to around 6.3 billion euros, instead of 6.7 billion, as was expected until now. The sale depends on the "verification of all necessary conditions." For Novo Banco, "this transaction represents another important step in the process of its divestment of non-productive assets," the bank said in the note sent to the CMVM. In addition to Nata, Ramalho wants to sell Albatross The bank has another portfolio of bad debts on sale, though this time in Spain. The sale of Albatross, a portfolio of NPLs valued at 400 million euros, is als0 expected to finalise by the end of the year. In addition to the sale of bad debts, Novo Banco also sold a portfolio of 9,000 properties to the US-based Anchorage Capital Group for 716 million euros. The servicing companies Finsolutia and Hipoges will take over the management of the portfolio. The sale of the portfolio of properties was largely responsible for the 420-million-euro loss that Novo Banco posted in the year between January and September of this year. The sale accounted for nearly 160 million euros of the losses that the bank registered in that period. Bank has a buffer against losses In order to clean up its balance sheet, the Portuguese state is providing Novo Banco with a sort of cushion against its losses. Portugal pledged to protect the bank of some of its potential losses when it sold 75% of the bank’s capital to the American fund Lone Star. Since the sale of NPLs and real estate generates impairments, whenever Novo Banco’s capital ratio falls beneath 12.5%, the Contingent Capital Facility is activated. Through the facility, the Portuguese state agreed, where necessary, to provide a buffer against losses on the loans included in the sale negotiated with the Government. In its half-yearly earnings report, the bank estimated that it would require an injection of €726 million from the contingent capital mechanism in 2019. Original Story: Economia Online - Flávio Nunes and Paulo Moutinho Translation: Richard Turner
 
Montepio Sells Portfolio of Bad Debts Valued at 239 Million Euros
29 December 2018 After Novo Banco, it was the bank led by Carlos Tavares’s turn to announce the sale of a portfolio of bad debts, this time valued at 239 million euros. Montepio just returned to the market, selling a portfolio of bad debts. Shortly after Novo Banco concluded the largest ever sale of non-performing loans by a Portuguese bank, the institution led by Carlos Tavares announced the sale of 239 million euros in toxic loans. "After a competitive sales process," the bank signed a public deed for the "sale of a portfolio of non-performing loans in the form of a direct sale to Mimulus Finance, a company based in Dublin and incorporated under the laws of Ireland," the bank announced. In a statement to the CMVM, Montepio noted that the "gross total sold was 239 million euros, comprising a portfolio of approximately 10,000 contracts." The bank did not mention, however, the value of the sale nor its impact on the bank’s earnings. Earlier this month, Bloomberg reported that the bank was looking to conclude the sale before the end of the year. However, the news agency stated that the sale would be larger: €370 million, divided into two tranches, one called "Atlas" with €250 million in loans, and another called "Cascais",  with €120 million. "The completion of this operation is the materialisation of Caixa Económica Montepio Geral's strategy of continually reducing its non-productive assets," Carlos Tavares stressed. At the end of the first nine months of the year, Montepio had a non-performing exposure (NPE) ratio of 16.2%, with 2.18 billion euros in bad debts out of a gross loan portfolio of €13.5 billion. Original Story: Economia Online - Paulo Moutinho Translation: Richard Turner