Sale of Troubled Real Estate Loans Potentially Worth €5.2 Billion

13 September 2018

This year and next, many banks (but also other financial institutions) are expected to rid themselves of the non-performing real estate loans they still have on their books. The consultancy Prime Yield predicted today during a presentation of the Portuguese real estate market to international investors in London.

The sale of non-performing loans (NPLs) in Portugal could reach a total of more than €5.2 billion in 2018 and 2019, the real estate consultancy Prime Yield estimated.

Nelson Rêgo, the CEO of Prime Yield, noted that “these portfolios are mainly in the hands of banks, although other financial credit institutions also have some product for the market.”

Regarding the type of investors who are interested in acquiring that type of asset, “they will be mainly funds and service companies, although many of the latter are also already held by funds,” Mr Rêgo added.

The executive also explained that there is a high concentration of NPLs “in the corporate sector and many of these loans have real estate assets as collateral, so investors who are interested in commercial and corporate real estate with a higher risk profile than through direct investment in real estate, will be among the most active. Also, credit restructuring companies are also very active, especially now that the economy is favourable.”

The data that the Jornal Expresso reviewed was disclosed Thursday in London by Prime Yield at the presentation of its latest report, “Investing in NPL in Portugal: The Time is Now!”. The study was presented by Mr Rêgo during the largest European conference on NPLs – “NPL Europe – Autumn 2018” organised by Smith Novak.

€2 billion of NPLs sold in 2017

That consultancy guaranteed that 2017 had already been a very dynamic year for NPL portfolio sales in Portugal – at around €2 billion – but sales this year and next should be much more significant, forecasting an annual average growth rate of 15% to 20%, which will increase the volume of NPL traded in 2018 to €2.4 billion and 2019 to €2.8 billion.

The CEO of Prime Yield explained that “the sale of NPLs has developed very positively in Portugal, but we still have a long way to go, as the stock of NPLs remains very high and there is considerable pressure to deleverage. This, coupled with improved economic conditions and the housing market, has led Portugal’s banks to increasingly view the sale of these assets as one of the most efficient ways to accelerate NPL reduction.”

Mr Rêgo assured that, at the same time, “there is greater demand for this type of product, both by credit recovery companies and by specialised investors. So the conditions are being met for the market to become more liquid and the pace of transactions accelerate.”

The executive noted that in the Autumn Update, which cited data from the Bank of Portugal, the NPL stock in Portugal in March 2018 amounted to €34.5 billion, a fall of around €16 billion from the €50.5 billion as of June 2016. He added that “the NPL ratio also declined considerably in this period (from 17.9% in June 2016 to 12.7% in March, although that figure is still well above the average for the eurozone (4.8% in the first quarter of 2018).”

Original Story: Jornal Expresso – Vítor Andrade

Photo: Bruno Rascão / Vision

Translation: Richard Turner