Greek red loans: The big battle of servicers for packages worth 10 billion

The companies in the sector are turning their attention to the management of the last apparently large packages of red loans, which will be put up for sale in 2024.

These are non-performing exposures of 10 billion euros, which will change hands in the coming months:

– 5 billion euros which will be sold in parts by PQH, the company that manages on behalf of the Bank of Greece the bad part of the assets of the credit institutions that were put into liquidation in the last round of consolidation of the banking sector

– 3 billion euros of bad loans of Attica Bank and Pankritia Bank that will either be sold or securitized with the support of the Heracles state guarantee program, as part of their merger to create the 5th pole in the domestic system

– 2 billion euros in total to be sold or securitized by the systemic groups, as part of their strategy to accelerate the rate of reduction of arrears indicators, with the aim of faster convergence with the European average.

A change of correlations

As a source from the management industry points out, the aforementioned portfolios will probably be the last of this scale to be put up for sale.

In this context, he notes, the undertaking of their management will be decisive for the final shaping of the shares and power relations in the market of servicers.

It is estimated that it will speed up the process of gathering it, as today 83% of the loans are under the control of 3 schemes (DoValue, Intrum, Cepal), while 15 of the total 23 operating companies record little or no activity.

This is a trend that has already been recorded in Spain and Portugal, which had moved faster compared to Greece in adopting a model of massive unconsolidation of non-performing exposures from bank balance sheets, immediately after the outbreak of the debt crisis in the Eurozone region.

At the same time, increased mobility is expected in the secondary market of non-performing loans, with the sale of packages currently held by the funds, to third-party investment schemes.

Banking sources say this will be the first step before cured loans begin returning to credit institutions sometime in 2025 and later.

Market sizes

Based on the most recent data, at the end of June 2016, the servicers were managing exposures totaling 89.4 billion euros.

Of these, the majority, 77% or 69 billion euros, have been sold or securitized by the banks and the remaining 23%, around 20 billion euros, remain on their balance sheets.

According to the servicers’ business plans, recoveries will come 2/3 from settlements and 1/3 from auctions.

The changes introduced by the private debt bill under public consultation, which among other things makes the out-of-court mechanism more attractive, are expected to give impetus to the restructurings.

And this is because the mathematical formula for deriving the proposed regulation is modified, in the direction of reducing the amount that must be recovered on a case-by-case basis.

The new extrajudicial scheme

The servicers believe that the proposed regulations are moving in the right direction, however they have asked the Ministry of Finance to introduce safeguards so that the legislation is not abused by strategic defaulters.

Specifically:

– They argue that in order to activate an arrangement the borrower must pay a down payment. In this way there will be a strong disincentive for those who want to use the out-of-court mechanism just to delay.

– They have requested that any agreement reached constitutes an enforceable title. This means that if the debtor stops serving the arrangement, the legal actions of the creditors will not start from the beginning, but will continue from where they were before the restructuring plan was signed. In this way, no time will be wasted in the event of default and borrowers will not lightly stop servicing their debt.

– They believe that the criteria for identifying vulnerable households should be expanded, as currently the limits applied are very low. More than a few borrowers are excluded from the intended protection because the value of their real estate has increased, following the rise in prices in the real estate market in recent years.

– They have requested that more time be given for the creation of digital information services for debtors included in the Katselis law. According to the bill, the deadline for the relevant preparation expires on 31/3/2024 and the servicers, especially for the aforementioned grants, would like it to be extended until the end of June.