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Piraeus Bank to securitize €7 bn NPLs in 2020. What is the NPL reduction plan.
The NPL securitization of €7 bn which Piraeus Bank plans to transfer to Hercules APS will cause a loss of €1 bn to the bank, but at the same time it will ease risk-weighted assets. The total final impact on the Bank’s funds will reach of 1.8%.
Piraeus Bank will combine the securitization with its corporate transformation in order to absorb the losses and to avoid the enactment of the provisions of the law which provides for a mandatory capital increase in the event of a loss of profit.
In this context, the bank is expected to divert and divest its core banking activities in the third – fourth quarter of 2020 to a new 100% banking subsidiary, while converting Piraeus Bank’s existing legal entity into a holding company. The same model was recently approved by the general meeting of shareholders of Eurobank, and will be followed by Alpha Bank.
The only bank to not follow this path is the National Bank of Greece (NBG), as the recent exchange of its government bonds with a new 30-year term allows it to absorb losses from the NPL reduction through securitization.
For the current fiscal year, Piraeus Bank management told analysts that it expects pre-tax profit of 200 million euros.
To reduce its NPLs, Piraeus Bank will proceed with two securitizations: The first (Phoenix), at the middle of the year, with non-performing mortgages of € 2 bn and the second (Vega), at the end of the year with NPLs of €5 bn: €1 bn mortgages and the rest €4 bn business loans with RE collateral.
From the EUR 7 billion securitization, the Bank’s holdings of the senior bond, taking zero Risk Weighted Asset, will amount to EUR 2 billion. The Bank will also hold 5% of mezzanine and junior securities.
The Piraeus Bank securitization aims to reduce the NPEs to about 29% at the end of 2020 from 49% at the end of 2019. The target for the end of 2021 is 22%, for 2022 15%, and for 2023 less than 10%. From the end of 2019 to the end of 2022, the Bank’s NPLs will have decreased from €24 bn to under €8 bn.
This year alone, by accelerating its operations, Piraeus Bank is expected to reduce its non-performing loans reserves by approximately €11 bn, instead of 7 bn that was originally planned. In the three-year period 2020 – 2022, Piraeus Bank expects new inflows of NPLs of €4 bn. Regarding the NPLs coverage ratio, management said it is moving up to 30% in mortgages and 60% in total.
Original Source: Capital
Adaptation/Translation: Kiki Athanasiadis