Portuguese NPL sales set to accelerate

The heat is on from regulators and politicians to whittle down the country’s NPL mountain.

Non-performing loan sales in Portugal look set to ramp up to almost €2 billion in 2017, according to the latest research from consultancy firm Prime Yield, which is based in the country.

This would represent a 33 percent increase from the €1.5 billion estimated to have been traded in 2016, the study says.

Non-core debt transactions will gain momentum this year, on the back of “intense” regulatory and political pressure to reduce the NPL stock in Portugal – estimated at €41 billion – and fasten the pace for deleveraging, the report notes.

In early June, the government ruled out the creation of a ‘bad bank’ or an independent vehicle to absorb NPLs and, along with Banco de Portugal and the major banks operating in the country, it is now working on the creation of an integrated platform for the management of distressed debt.

This model, which is subject to European banking competition and supervision rules, would entail the non-performing debt staying on the banks’ balance sheets, but would allow for accounting separation. This means that these institutions will not have to assume loss recognitions, thus reducing the need for further new public or private capital injections.

The sale of Portugal’s state-rescued Novo Banco to Lone Star – expected to be completed in November this year – is also likely to stimulate a high level of sale activity in 2017, since the US private equity firm will need to deleverage part of its non-core book, as required by the EU. Novo Banco holds the country’s largest NPL stock at €12.8 billion.

The research highlights the “increasing aggressive bidding now observed for core properties in Portugal”, which could also lead to the increase of NPL deals, especially for opportunistic investors.

“This type of investor doesn’t want to be directly exposed to property acquisitions and … NPL portfolios are also more appealing in terms of pricing profile,” the report reads.

International entities, such as BlackRock, the world’s largest asset manager, or boutique investment bank Stormharbour have already informed the Portuguese authorities about their interest in buying NPL portfolios from local banks.

In July, Bain Capital Credit disclosed the acquisition of a NPL portfolio worth €476 million from the Portuguese bank Caixa Geral de Depósitos.

The US company already announced its interest in completing new investments in Portugal – a market in which it sees potential for new investments, mainly in the NPL and real estate areas.

“Investors are highly interested in this market, which is, as a matter of fact, the case throughout Europe. Concerning Portugal’s specific case, there are still fiscal and legal issues to be resolved, and we are waiting for a governmental solution to be found by the end of this year,” said Nelson Rêgo, CEO of Prime Yield.