The measures to tackle the coronavirus epidemic in Europe will disrupt the trades and the securitisation of NPLs, according to Moody’s. The agency also expects deterioration in RE prices, depending on the depth of the recession in the economy, which will clearly affect the banks. The deterioration of the quality of assets as well as a new wave of bad loans is also considered certain.
According to the agency, the expected increase in NPLs due to COVID-19 will reverse the previous positive trend. The stock of NPLs in a representative sample of European banks fell to €617.8 bn at the end of the third quarter of 2019 from €714.1 bn the previous year. The Italian banks had the highest stock of NPLs, at €127.1 bn, or 7.2% of total loans, while the NPL ratio of Greek banks was at 37.4% with a stock of €74.5 bn.
The functional disturbances and the pause of the financial activities are a particularly difficult development for the Greek banks, coming at a point when the activity of the NPL market had begun to accelerate.
The Greek banks have the highest NPL rate in Europe although the recent decline of the numbers has been significant. However, the Greek market for secured NPLs recorded only €4.8 bn in real estate loans (RE) and REO sales (from banks’ real estate), slightly higher than the €3.2 bn recorded in 2018.
The Hercules securitisation project is aimed to help Greek banks reduce NPEs and is supportive both in domestic NPE transactions and in the banks themselves, as: (1) it aligns the interests of senior securities (probably the banks themselves) with other counterparties to transactions and (2) supports the quality of banks’ assets by reducing the existing stockpile of troubled loans left over from the last recession, in a faster way. However, due to COVID-19, delays in the implementation of t u plan are obviously inevitable.
Original Source: Capital
Adaptation/Summary: Kiki Athanasiadis