Details of the Bank of Cyprus agreement for the sale of a portfolio of loans to Apollo investment fund known as Project Helix have yet to be finalised but the bank has already begun work on a second such NPL disposal transaction.
Project Helix represented a significant milestone in the delivery of the bank’s strategy of improving asset quality through the reduction of NPEs.
The second such ambitious transaction aiming towards the reduction of the NPLs portfolio from the Bank’s balance sheet is codenamed Helix 2 and its successful implementation will reduce the percentage of red loans to less than 10% of the total.
This is not an easy task considering that Helix 2 is not just a package of loans with a book value of more than 2 billion euros, but it will also include the most difficult non-performing loans in the bank’s balance sheet with their selling price certain to be substantially reduced. In any case less than the price Helix 1 loans were sold to Apollo, which was at a book value of 48 cents.
When the current Project Helix transaction is completed non-performing loans in the bank’s balance sheet will be limited to 5 billion euros or 37% of the total (based on the data for the first nine months of 2018).
All possible scenaria are on the table as the Bank considers the consequences of the second transaction, and focusing especially on the capital impact of the financial institution. Unless a drastic change takes place over the next few months, then it is obvious that a large deleveraging movement of this kind is likely to lead to additional capital needs.
After Helix 1, the bank’s main non-performing loans will consist of € 800 million of business loans, € 1.1 billion towards small to medium-sized business and € 2.1 billion towards retail business. The coverage ratio of these loans is estimated by the bank to be 57%. According to the bank’s presentations, non-performing loans valued at one billion euros are in the process of exiting the NPL unit and returning to a normal one.
The goal of the bank is to reach agreement on Helix 2 before the end of the year.