Filenews 14 February 2021 - by Theano Thiopoulou
The practice of selling non-performing loans has now been established in the Cypriot market as in any other country whose banking system faces such problems.
Starting in 2017, Cypriot banks began unloading distressed loans in an effort to reduce their rate and improve key financial indicators. A survey by WiRE FS, obtained by "F", has recorded all transactions in recent years related to the sale of non-performing loans. The beginning was made in 2017 with a "trial" operation in which the Bank of Cyprus made available a package of non-performing loans to CDB Bank. The project "Zeus", as it was called, amounted to EUR 22 million. The amount of the loan was EUR 1 million and allocated to the book value of the portfolio.
The baton was taken by Hellenic Bank which was the first to sell a package of red loans to a specialized management company from abroad. Through the "Semele" project, Hellenic has allocated a portfolio totalling EUR 144 million. Euro. The loans were acquired by B2Kapital and involved 1082 borrowers for 1809 financing agreements.
This was followed by the largest operation to date, which concerned the Project "Helix 1" of the Bank of Cyprus. The agreement with Apollo Global Management was announced in August 2018 and involved a loan portfolio as well as real estate with a gross book value of EUR 2.8 billion. Euro. This portfolio concerned 14,024 loans to large and medium-sized enterprises. It is worth noting that although the original agreement was for sale at the price of EUR 1.4 billion, it was not possible to sell it for eur 1.4 billion. However, it was eventually reduced to EUR 1.2 billion. In the meantime, the amount of the aid was EUR 1 million, as a result of repayments made in the interim. The amount repaid ended up at Apollo, as is provided for in such cases.
A few months later, the Bank of Cyprus announced the sale of another portfolio, codenamed "Velocity 1", which involved unsecured retail banking loans totalling EUR 245 million. Euro. The particular problem portfolio, whose book value was only EUR 34 million, is the largest in the world. The amount of the aid was EUR 1 million, which was acquired by APS Delta. As Niki Tsivitanou, chief executive of WiRE FS, explained to "F", this agreement may seem of little comparative value, but these cases are the most difficult to handle and the ones that have the greatest cost. "For example, Velocity 1 involved almost 10,000 particularly troubled borrowers, most of whom were natural persons," he explained.
No loan sale agreements were announced in 2019, however, in January 2020 the Bank of Cyprus announced an agreement for the "Velocity 2" project. The non-performing loan package had similar characteristics to those of "Velocity 1" and this time was acquired by B2Holding Group. This portfolio had a nominal value of EUR 398 million. EUR 133 million and a book value of EUR 133 million. Euro. The loans concerned about 10,000 borrowers, the vast majority of whom were private individuals (approximately 8,400) while several loans were also granted to small and medium-sized enterprises (approximately 1,600).
Two years after the "Helix 1" agreement, the Bank of Cyprus announced an agreement on the "Helix 2(a)" project. Buyer this time the fund management giant Pimco which would acquire loans worth EUR 916 million. EUR 1.46 billion with a contractual balance of EUR 1.46 billion. Euro. Although the book value of the loans was significantly lower than "Helix 1", it did include many more loans. A total of 22,224 loans mainly to retail customers and small and medium-sized enterprises secured 5,616 properties.
In October 2020 it became known that another major player in the non-performing loan market was entering the Cypriot market. The reason for Bain Capital, which bought the loans included in the project "Marina" of CAC Coral, i.e. the non-performing loans of the National Bank of Cyprus. The loans had a book value of approximately EUR 325 million. They were acquired at 31% of their book value, i.e. at around EUR 108 million. Euro.
About a month ago the last transaction was announced in the Cypriot market of non-performing loans. The Bank of Cyprus has announced a new agreement with Pimco for the project "Helix 2(b)". The package includes loans worth EUR 545 million. EUR 783 million with a contractual balance of EUR 783 million. Euro. At the completion of the agreement, an additional 16,000 non-performing loans linked to 4,000 properties will leave the bank's portfolio.
Different reading
Explaining the difference that almost always occurs between the book value of the loans and the price at which investors eventually acquire the loans, Niki Tsivitanou explained how banks and investors use different criteria for calculating the value of these loans. "Investors seek a higher rate of return on investment and take significant account of the length of the recovery process (judicial and non-judicial proceedings), so it is an important parameter that they take into account in their assessments," he noted. At the same time, in order to assess the value of a loan, they take into account the expected cash flows and the total costs of managing them, which results in a significant reduction in their value. On the contrary, banks, following international accounting standards, value much above.
Administrators and the management process
As is well known, in addition to the purchasers of non-performing loans, their managers, who are the ones who will carry out the difficult management process at the end of the day, have an important role to play. Non-performing loans of Alpha Bank Cyprus, totalling EUR 3.2 billion, are in the form of loans from Alpha Bank Cyprus. The amount of the aid is EUR 1 million, managed by the Italian doValue. Astrobank's non-performing loans are managed by Trusset Asset Management, 74.9% of which is controlled by Quant Master Servicer Cyprus Limited. The company manages loans amounting to EUR 500 million. Eur 140 million and real estate worth EUR 140 million. Euro. Quant is part of the Qualco Group, in which Pimco is a shareholder. In relation to the loans of the Cooperative, as is known administrator is Altamira Asset Management, which belongs to the same group as doValue. The non-performing loans of Hellenic Bank are managed by APS Debt Servicing Cyprus Ltd which started as a joint venture between Hellenic and Czech APS but is now fully controlled by Hellenic Bank. The management of the loans acquired by the Investment Fund Apollo Global Management by the Bank of Cyprus ("Helix 1"), is managed by Gordian Holdings which is also their owner.
The bad bank scenario
As Niki Tsivitanou comments on the possibility of converting the State-owned KEDIPES into a national company for the acquisition of non-performing loans, as Recently Revealed by Finance Minister Konstantinos Petridis in "F", it is likely to diversify banks' plans for further sale of non-performing loans. "Especially for loans involving first home or main business housing, for which we have seen that there are particular political sensitivities, banks may expect the government's plans to arrive before making final decisions, even though they themselves are under pressure from supervisors to reduce their problem loans to a single-digit percentage," he concluded.
