NPL sale by Hellenic Bank paves the way for additional loan sales in Cyprus, Moody’s says

Moody’s rating agency described a recent sale of a non-performing loan (NPL) portfolio by Hellenic Bank as positive, noting the deal paves the way for additional problem loan sales both by the bank as well as other Cypriot banks, burdened by a high stock of NPLs.

Last Tuesday, Hellenic announced it had agreed to sell a package of non-retail NPL portfolio amounting to Euros 145 million portfolio to B2Kapital Cyprus Ltd (B2K), a wholly owned subsidiary of Norwegian B2Holding ASA, a leading pan -European debt specialist.

The sale is credit positive for Hellenic Bank because it reduces its non-performing exposures (NPEs) as of September 2017 by 6.2%, helping the bank meet its NPE reduction targets without negatively affecting its profitability and regulatory capital, the agency wrote in its bi-weekly bulletin, Credit Outlook.

The transaction, the agency added, albeit small, is also the first of its kind in Cyprus, paving the way for additional sales of NPEs from Hellenic and other Cypriot banks burdened with large amounts of problem loans.

Although the bank did not disclose the sale price, Moody’s estimates that these loans were already highly provisioned, likely at above the bank’s 61% NPE provisioning coverage.

According to Moody’s, all domestic Cypriot banks, including Hellenic Bank, are struggling to manage their high levels of NPEs, whereas Hellenic Bank had around Euros 2.3 billion of NPEs outstanding as of September 2017, comprising a high 56% of its gross loans.

The agency estimates the negative flow of NPEs in Hellenic Bank that began in December 2015 will continue, adding that the NPL ratio and NPE (based on the EBA’s stricter definition) will decline to 47% and 54% compared to September 2017, taking into account the B2K transaction.

The sale amounts to around 82% of Hellenic Bank’s NPE reduction in the first nine months of 2017, accelerating the bank’s asset quality improvement, the agency noted.

Furthermore, Moody’s pointed out that improving their weak asset quality is a priority for all domestic Cypriot banks, as the large overhang of NPLs consumes sizeable resources and strains banks’ profitability and capital, constraining them from lending to the growing economy, where we expect real GDP growth of 3.2% for 2018.

The sale of NPLs will give banks more options in managing their problematic exposures, in addition to the available tools of restructurings, write-offs, liquidations, and debt for asset swaps, Moody’s concluded.

Source: Cyprus News Agency