Banks mulling special NPL vehicles

4 June 2016
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Greece’s core banks are considering the creation of special purpose companies which will receive large portfolios of nonperforming loans and then be sold so that they stop burdening the lenders’ financial figures, as NPLs now exceed 100 billion euros in total.

The European Central Bank is asking bank managers to proceed with tackling this huge matter at a speedier pace and to make brave decisions for the drastic slashing of bad loans from their finances. In this context, one of the plans being examined concerns the special vehicles to be created with NPL portfolios and sold off not to third parties but to the existing stakeholders of the banks.

This creation of what would resemble a “bad bank” for each lender would serve to immediately lighten the credit sector’s financial reports, while the transfer of those vehicles to the existing stakeholders could offer them future benefits from the active management of those bad loans.

Nowadays the biggest obstacle to the sale of NPLs to third parties is the great distance between buyers and sellers. The buyers of bad loans want to acquire such portfolios at exceptionally low prices, due to the country risk, the devaluation of assets owing to the protracted recession in Greece, the inefficient legal system etc.

On the other hand, the sellers – i.e. the banks – are refusing to sell at such low prices as they appear certain that among the current NPL stock that reaches up to 55 percent of all loans there is a huge volume of debts that could revert to normality with the right management. In other words, they believe there is enough “fat” there for them to collect, so they prefer to hang on to the NPLs.

The creation of such special vehicles, banking sources say, requires them to be of sound structure and valuation, and their transfer will have to take place without any capital consequences for the lenders.

Other sources say that such an attempt would involve significant technical difficulties, and insist that bad loans should either be handled through the special units banks have formed, managed in cooperation with specialized firms such as Aktua and KKR – which recently entered joint ventures with Greek lenders – or be sold to other, specialized companies.

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