Spain 
Italy 
Greece 
NPL Platform to Finalise Six Operations By Year-End
26 November 2018
Created a year ago, the NPL platform is beginning to show some results. The participating banks are expected to approve six loan operations by the end of the year, amounting to more than 180 million euros.
Created just over a year ago by three of Portugal’s biggest banks, Caixa Geral de Depósitos (CGD), BCP and Novo Banco, the bad debt platform is beginning to finalise its first operations with the troubled debts. As far as ECO has been able to ascertain, six operations, with a total value of more than 180 million euros, are expected to be concluded by the end of the year.
Contacted by ECO, the platform’s management team declined to comment because the deals are still under negotiation and the financial institutions are not yet ready to sign off on them. However, ECO learned that the platform expects to wrap up the deals by the end of next month, before the Christmas and New Year’s holidays.
In September of last year, CGD, BCP and Novo Banco, with the support of the Government and regulators, signed a memorandum of understanding creating the Complementary Business Group (ACE), called the Bank Credit Management Platform, which the group presented as an alternative solution to normal remedies for reducing the weight of NPLs (non-performing loans) in the Portuguese financial sector. A year later, the initiative is finally beginning to show some results.
In order for the banks to include loans in the platform, they had to go through a series of steps:
- 1. The platform received proposals from the banks, each which revealed a list of the companies and debts they wished to include in the debt management vehicle;
- 2. The platform’s executive management team examined whether the proposals met the eligibility criteria that had been defined by the banks;
- 3. Each proposal that was found to comply was then submitted for review by the other banks. Just one of the two other participating banks had to approve the proposal for it to be included in the platform;
- 4. After the acceptance, the platform would begin to analyse to debts according to any available information;
- 5. A strategy and subsequent measures would then have been drawn up, aiming for a recovery of the company;
- 6. Finally, the proposal would have been submitted to the Restructuring Committee for approval.
From the beginning, the banks agreed that the platform would only accept individual loans worth more than €5 million. However, the platform only really began operations after the first quarter of 2018, after the three banks had presented their proposals by the end of March. The three banks identified a set of toxic loans valued at one billion euros.
In other words, the platform only really began to work in recent months, trying to gather information on the loan operations involving the three banks, before submitting a proposal to restructure the loans and the companies themselves to the financial institutions. As ECO has discovered, many of the loan processes lacked complete documentation, including information about guarantees and risk assessments, further delaying the platform’s work.
After presenting the proposals, which has already happened in some cases, the restructuring committee then has the final say in the implementation of the operation. The committee is composed of three independent members, who together account for a third of the vote. The other two-thirds of the votes are in the hands of the banks, and votes are by simple majority. However, the weight of each bank in the final decision depends on the value of the loan: that is, the greater the size of the loan, the greater the voting power of the associated bank.
Accelerating the restructuring process
While this restructuring process is presenting a lifeline to the indebted companies, the six operations expected to be finalised by the end of the year account for a small part of the banks’ holdings of NPLs. The bad debts weigh heavily on the banks’ balance sheets, eroding their returns.
According to the Bank of Portugal, at the end of last year, the Portuguese financial system held NPLs worth approximately 36 billion euros, about 13% of total outstanding bank loans. It was a noticeable reduction from the previous level of 17%, just two years ago. Though the banks’ efforts have been widely praised by authorities, including rating agencies, the focus is on a continued reduction in the coming years, bank executives have said.
Regardless, the platform will not “perform miracles,” Miguel Maya, the president of BCP, acknowledged. The NPL platform is seen as a method of accelerating the restructuring, the executive stated in an interview with Expresso a week ago. “The platform is a good idea. Let’s see if we can turn a good idea into results,” he said.
Original Story: Economia Online – Alberto Teixeira and António Costa
Translation: Richard Turner