Spain 
Italy 
Greece 
Caixa Sells €850 Million in Corporate NPLs
2 October 2018
CGD is continuing the process of reducing its exposure to non-performing loans. The bank is about to finalise the sale of a portfolio of loans worth €850 million. However, that figure may yet change.
Caixa Geral de Depósitos (CGD) is finalising the sale of a portfolio of non-performing loans worth roughly €850 million in a continuance of its efforts to clean up its balance sheet and improve profitability. The bank also hopes to increase its credit rating in the process.
“CGD’s Board of Directors is finalising negotiations for a contract to sell a portfolio of corporate loans, whose nominal value in March 2018 (cut-off date for the transaction) amounted to 854 million euros,” the bank stated in its financial reports for the first semester of this year, when it recorded profits of 194 million euros. “This portfolio [of 854 million euros] incorporates operations in the amount of 214 million euros, which had already been written off in June 2018” the institution added.
The bank, helmed by Paulo Macedo, says that aspects of the contract are still “under discussion” with the buyer, “including the possibility of adjusting the perimeter of the transaction.” The bank declined to reveal the identity of the potential buyer, but Bain Capital, which bought 476 million euros in bad debts from CGD last year, is considered one of the principal interested parties.
Adjustments to the portfolio may also be made before the bank finalises the sale, “it is not possible at this date to determine the financial impact of the transaction, which, however, is considered positive,” the bank said in its reports.
Last May, José Brito, CFO, revealed plans for the sale at the bank’s first quarter earnings conference. At the time, the executive declined to disclose the amount under negotiation, limiting himself to stating that: “It will undoubtedly have an impact in the coming quarters.”
The transaction, which will be concluded soon, will be another in a series of similar sales by the bank, which has been very active in the sale of non-performing loan portfolios, particularly corporate loans. “In the first half of 2018 and 2017, we also sold other loans to corporate clients whose balance sheet values before impairment at the reporting date amounted to approximately 26.26 million and 505.27 million euros, respectively,” CGD noted.
There is an additional effort on the part of the state-owned bank to try to surpass the targets imposed by the European Commission, under CGD’s capitalisation program. During the presentation of the bank’s last quarterly results of results, Paulo Macedo referred to the effort, whereby the bank is aiming to reach an NPL (non-performing loans) ratio on assets of less than 7% by 2020 – in June 2018; the ratio stood at 10.5%.
The strategy has the underlying objective of improving the profitability of the financial institution, which expects to end 2018 with “significant profits,” according to Mr Macedo. The bank is also looking to improve its credit rating, the bank’s biggest challenge next year, according to statements by the CEO.
Portugal’s banks have been accelerating their sales of portfolios of loans with reduced probabilities of repayment by borrowers. In addition to the portfolio sales, other strategies to reduce the level of bad debts on the banks’ balance sheets include restructurings and recovery of loans or write-offs (i.e. recognising the loss). The strategies are increasingly central to making the financial system more resilient.
In addition to CGD, Novo Banco has also been more active in such operations, and the bank led by António Ramalho was the last to begin to sell off its portfolios of bad debts. The debts that Novo Banco is in the process of selling now are included in a portfolio of NPLs denominated Project Nata.
The loans included in Project Nata are worth a total of €1.75 billion, the largest portfolio ever to be sold in Portugal yet, through an operation to be carried out in two tranches. The first includes 550 million euros worth of loans from 54 large companies, while the second tranche, worth €1.2 billion, includes NPLs from more than 62,000 smaller companies, according to Debtwire.
Original Story: Economia Online – Alberto Teixeira
Photo: Paulo Duarte / Negócios
Translation: Richard Turner