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New red loans up for sale

August 5, 2019 at 8:55am
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There is movement in the sale of non-performing loans to foreign investment funds from the island’s two big systemic banks. And if things go according to plan, the banking system of Cyprus will get rid of about €3.5 billion to €4 billion of NPLs before the end of the year.

A second round of deleveraging is set to begin a year after the big sale of €2.7 billion of NPLs by Bank of Cyprus. Pacific Investment Management Co, known as Pimco, appears ready to buy €1.5 billion of red loans from Hellenic Bank, according to a Bloomberg report.

However, the ongoing debate in the House of Representatives over the new foreclosures bill which basically slows down the process could affect the sale of packages of NPLs.

The European Central Bank has already expressed deep concern over this, saying that due to the key role the sale of NPLs packages plays in the bid by banks to reduce red loans, the amendments to the foreclosures bill will burden prospects for the successful completion of such plans.

Investors are reportedly demanding a stable legal framework that will allow them to properly price the deals they are negotiating. And most importantly, the significantly prolonged period of sale of collateral under the new foreclosures process will have a “significant impact on the sale price of such portfolios”.

As far as Hellenic Bank is concerned, the Bloomberg report refers to two well informed sources who confirm that Pimco, which already owns 17.3% of Hellenic’s shares, made a non-binding bid for the portfolio.

The process for the binding bidding is likely to be carried out in September.

Pimco seeks to boost investment in southern Europe following the acquisition of Eurobank’s €2b secured debt in June, as well as assets from Italy’s UniCredit SpA. Hellenic had a small sale of non-performing loans at the beginning of 2018 and was the first bank to make such a move.

Hellenic Bank is not hiding its interest in a new sale of NPLs. The bank currently looks into ways to dispose most of NPLs on its balance sheet so that the percentage is significantly reduced to below 10% of the total. This move seems to be – more than ever – viable by prevailing conditions in the bank, given the recent capital increase and the anticipated profitability over the coming quarters.