Investors steer clear of Greek NPL market

Many distressed investors are ignoring Greece in favour of Italy amid claims of unwieldy processes and the lack of an efficient servicing market.

Despite estimates that there are around €100 billion of non-performing loans in Greece and Cyprus, many investors say they will continue to stay clear of the region amid continued questions over foreclosure and enforcement procedures.

“Until there is some certainty on the servicing of portfolios and we can ensure we’re the owner of the assets it remains difficult for us to invest, although Greece is on our radar,” said Natalia Joubrina, director at Carval Investors.

Others market players noted the “staggering” amount of toxic assets on Greek banks’ balance sheets, but said they will only seize the opportunity once profound restructurings take place.

“It’s too early in the credit cycle to invest in Greece,” said Massimo Ruggieri, investment professional at Elliott Advisers. Ruggieri said there would have to be the creation of a fully-functioning servicing market before the firm will explore opportunities further.

Attendees at the Global ABS conference in Barcelona pointed to the fact that investors purchasing NPLs are required to obtain banking licenses, which can be a cumbersome process and the time taken for servicers to acquire licenses can be lengthy. Servicers are key to enforcing securities.

One of the key concerns is the opaque nature of the NPL market, an issue that is not solely restricted to Greece. This is one bulwark to unlocking the sale of underperforming assets as many said that better data provided by sellers would help reduce the pricing gap.

Italy has been a key focus for distressed buyers in recently, as estimates place its total NPL stock as high as €360 billion. While in recent years the banks have been reluctant to write off underperforming assets as they lack the capital headroom, they are facing pressure from the European Central Bank to begin unloading the NPL stock.

“More transparency in the selling process would open the market up to more investors. At the moment there are only around 20 to 30 buyers, but creating better access would improve liquidity,” said Manuel Enrich, investor relations director at Spanish bad bank Sareb.

Recent legislative changes surrounding foreclosure agreements and the introduction of the GACS agreement, a guarantee on the senior tranches of bank NPLs by the Italian government, have helped the process, but there is an agreement among investors that more needs to be done.

For the banks, securitisation remains at an embryonic stage with most asset transfers taking place through bilateral transactions. It means the resolution process can be long as NPLs cover a range of assets, including both secured and unsecured, as well corporate, credit and real estate loans. Assessing collateral value can be resource-intensive and difficult to compare with other underperforming assets.

Many agree that positive steps are being taken in Italy, others are clear that they will never be persuaded. One credit investor noted the rising tide of left wing populism in Spain, Italy and Greece as a reason to not get active in the region.

“A left wing party gets into government in Spain or Italy and suddenly they forgive the debts,” he said.