Greek banks' NPLs up in 1Q20
The level of non-performing loans for the four largest Greek banks increased in the first quarter of 2020 for the first time in years as the coronavirus crisis hit. Piraeus Bank, Alpha Bank, Eurobank Ergasias and National Bank of Greece (NBG) have been preparing for the next wave of NPLs expected to be generated due to the COVID impact in the economy, their 1Q20 earning reports showed.
Total Greek banks' loans in arrears of over 90 days (NPLs) increased to EUR 49.5bn in 1Q from EUR 48.6bn the previous quarter, while total non-performing exposures decreased to EUR 69.1bn from EUR 70.1bn.
At the individual bank level, NPLs were stable for Alpha Bank at EUR 14.7bn and EUR 7.5bn for NBG.
For Piraeus and Eurobank there was a slight increase, mainly due to business loans. Piraeus’s NPLs were EUR 17.5bn at the end of March, with non-performing business loans up to EUR 10.8bn from EUR 10.1bn in December 2019.
Eurobank’s NPLs increased to EUR 9.8bn from EUR 9.6bn, with NPE corporate loans up to EUR 4.5bn in March from EUR 4.4bn in December 2019.
The banks are expecting a new wave of NPLs in the coming months as an effect of the crisis and have set aside total EUR 1.4bn of bad loan provisions, EUR 860m of which specifically due to the pandemic.
Eurobank only set aside EUR 126m provisions without specifically adding for COVID-19 losses.
The Bank of Greece estimates that Greek banks' non-performing exposures will increase between 4% and 11%, bringing the NPE ratio between 44% to 51%, as a result of the COVID-19 pandemic, Euro2day reported. It forecasts that between EUR 6.4bn and EUR 18.1bn loans will turn into non-performing.
The real turning point will be towards the end of the year when loan payments frozen for up to nine months under the Greek moratoria program are expected to resume. In order to be eligible for moratoria loans, borrowers cannot delay payments for over 90 days (NPLs are excluded) and borrowers have to be affected by the consequences of the containment measures introduced to limit the pandemic.
“The COVID-19 crisis put on hold a number of NPL portfolio sales, due to both logistical constraints and due to uncertainty regarding whether the impact on recoveries would be timing only or also impact the quantum of recoveries,” said Christos Stefanidis, managing director at Alantra, “but in the second half of the year we would expect most sellers to resume their H1 transactions,” he added.
The market expects that banks will continue to focus on large securitisations rather than portfolio sales, which might comprise smaller numbers of borrowers and some secondary market sub-portfolio sales.
Greek banks have stated they intend to take advantage of the Hercules Asset Protection Scheme (APS), under which the government provides guarantee for senior notes from NPL securitisation. The Greek government approved the scheme in December 2019.
Mainly due to the program, “the banking sector was planning to reduce the NPL ratio to below 20% by end-2021,” said Fitch Ratings in a report. The rating agency also added, “the economic fallout from the pandemic is going to delay most of these planned securitisations, in our view, and will likely result in an increase in new NPLs.”
For Eurobank the finalisation of the already approved EUR 7.5bn Project Cairo is a matter of days.
In its 1Q2020 earning report presentation on 28 May, Alpha Bank announced the re-launch of its EUR 10.6bn Project Galaxy NPL securitisation, with the aim to finalise it in the fourth quarter of the year. The sale is structured in three parts: the sale of the servicer New Cepal, a EUR 7.6bn retail portfolio (split in a EUR 1.9bn SPV I and EUR 5.7bn SPV II), and a EUR 3bn wholesale portfolio.
Piraeus Bank has finalised the perimeters and started the pre-rating phases for the securitisations of the EUR 2bn residential mortgage Project Phoenix and EUR 5bn residential and commercial Project Vega which are targeted to take place within the fourth quarter of 2020, said CEO Christos Megalou in the earnings report presentation on 1 June.
NBG announced it was planning to complete a securitisation of EUR 6bn NPEs in 2020. The bank could still move ahead with the sale of the EUR 1.6bn NPL portfolios Project Icon, for which Bain Capital Credit was set to be the winning bidder before the start of the lockdown, as reported.
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Alessia Pirolo is Head of NPL Coverage at Debtwire ABS. From a previous focus on Southern European Commercial Real Estate, she is now in charge to expand Debtwire's NPL coverage areas around the world. Before joining Debtwire, she covered U.S. and European commercial real estate for The Wall Street Journal, and the Commercial Observer. She holds a master’s degree from the Columbia University Graduate School of Journalism.
Amy is a data journalist for Debtwire. She covers the sale of NPLs and non-core loans, with a focus on Irish and UK markets and unsecured loans.