Banks across Greece are beginning to secure their bad loans planned for 2020 as the uncertainty brought on by the current economic crisis begins to have an impact on various non-performing credit portfolios.
There are various factors that will contribute to the securitisation of the loans including the size of the economic recession and recovery estimates, property prices and how they are impacted and a new institutional framework currently being processed by the government for the subsidising of main residence mortgages.
These factors will also directly impact the price the loans are sold for as banks look to assess and take into account the capacity that households and businesses will have to meet their payment obligations in 2021. These securitisation deals allow banks to transfer some of it’s bad and under-performing debts into a financing vehicle that will then sell different slices of risk to fund managers and specialist investors.
Debt collectors recover money from consumers and businesses who have fallen behind with their repayments, the proceeds of which flow to the investors with the safest piece getting paid first and the riskiest last. Avoiding a second lockdown is top of the priority list for banks worldwide due to the dramatic impact it would have on the global economy.
Leading banks and lenders are already reeling from the effects felt from the first lockdown but as the world begins to re-open, there is finally light at the end of the tunnel for investors. The bad loans are set to be sold by systemic banks Alpha, Piraeus, and National and are expected to add up to 24 billion euros.
The sales will start with the Galaxy project by Alpha Bank which is expecting to receive non-binding offers by the end of the month. The banks will aim to sell the bad loans to specialist investors and the securitization is part of a government scheme approved by the EU back in October 2019. The scheme allows the Greek government a ‘slice’ of the bad debts that banks sell on.
The EU ruled that the scheme was not in breach of its rules barring member states from providing unfair financial assistance. Investors who are worried about the process should take the recent sale of the Cairo portfolio by Eurobank as a good sign. The portfolio sold for €7.5 billion suggesting the market is certainly out there.