Moody’s: Greek banks increase npl outsourcing to CSFs, a credit positive

On 16 June, the Bank of Greece published first-quarter 2020 data for loans serviced by credit servicing firms (CSFs). The CSFs’ volume of nonperforming exposure es (NPEs) increased by 31% in the first quarter versus fourth-quarter 2019. Gradually outsourcing NPEs to
CSFs, which have expertise managing such loans, increases their recovery prospects and clears the NPEs from banks’ balance sheets, improving their asset quality. It also allows management to focus on new lending that will likely enhance core earnings over the next two to three years.
According to the central bank data, loans to domestic residents transferred to foreign financial intermediaries and serviced by CSFs increased to around €30.8 billion in the first quarter, from €23.5 billion in fourth-quarter 2019, when Greek banks had approximately €68.5 billion of NPEs.

Increasing recoveries will improve foreign investors’ appetite for Greek NPEs and their secondary market prices,
which will motivate banks to proceed with NPE securitisation plans and reduce the potential hit to capital from these securitisations.
Personal loans accounted for 53% of the NPEs outsourced to servicer companies in the first quarter. Of these, unsecured consumer loans that are the most risky NPEs and more difficult to recover comprised around €11.8 billion or 38% of the total serviced loans . Other risky and difficult-to-manage NPEs include loans to small and midsize enterprises (€5.9 billion), which are 19% of the total, and loans to sole proprietors (€5.6 billion), which are 18% of the total.

In March Moodys estimated that the banking system’s average ratio of NPEs to gross loans at around 40%, a constraint on the system’s credit profile. NPE-reduction efforts have been Greek banks’ main challenge since 2016, when NPEs peaked at around 49%, consuming significant resources, raising provisioning charges and negatively affecting profitability.

Greek banks aim to improve their asset quality mainly through securitisation and sales of NPE portfolios in the secondary market.
Most banks, with the exception of National Bank of Greece S.A. (Caa1 stable/(P)Caa1, caa11 ), also plan a subsequent transfer of core assets and liabilities into a separate banking subsidiary that will have a cleaner balance sheet.
Last March, Eurobank S.A. (Caa1 positive, caa1) completed a €7 billion NPE securitization and transferred its core assets and liabilities to a new banking subsidiary, before the full-blown breakout of the coronavirus pandemic. Although Piraeus Bank S.A. (Caa2 stable/ (P)Caa2, caa2) and Alpha Bank AE (Caa1 stable/(P)Caa1, caa1) plan similar steps by year-end, which will drastically improve their asset quality, we expect that the current market conditions affected by the coronavirus will delay the transaction

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