Portuguese Banks Have Potential to Securitise Bad Debts – DBRS

30 January 2019

Portugal’s banks have the potential to securitise portfolios of bad debts, following generalised European trends in the use of such instruments, DBRS said today.

According to Alessio Pignataro, vice-president of the European Securities Department, the Canadian rating agency expects banks in Portugal, Ireland and Italy to use these financial instruments to reduce their still high level of exposure to bad debts, along with potential newcomers such as Spain, Greece, Cyprus and potentially the UK.

“From the banks’ perspective, it allows for a more rapid reduction to non-performing loans (NPLs), freeing management to focus on new business,” Elisabeth Rudman, director and head of DBRS’s  European Banking Analysis Department, said to Lusa on the sidelines of an event on the subject in London.

Portuguese banks have conducted two securitisation operations since 2016, a small number compared to the 20 NPL securitisations conducted by Italian banks and four by Irish banks in the period.

A deal in 2017, called “Evora Finance”, was carried out by Caixa Económica Montepio Geral. At the time, it sold a €580.6-million portfolio of non-performing loans. Banco Santander Totta executed another deal in 2018, selling a portfolio of NPLs in the amount of 480.7 million euros.

DBRS assigned a “BBB” rating for both transactions but notes that “Evora Finance” is performing well, well above the initial estimates.

According to the agency, European banks have made significant progress in reducing their exposure to NPLs since the financial crisis. Banks in several countries, however, continue to have high levels of bad debts and “still have a long way to go.”

In Portugal, the government implemented legal, judicial and fiscal reforms to deal with the problem, according to the agency, but, in general, European banks continue to face difficulties recovering outstanding debts and mortgages, aggravating problems with low profitability and capital ratios.

Original Story: Diário de Notícias / Lusa

Photo: Reuters

Translation: Richard Turner