Big six banks step up sales of non-performing loans; €5.719bn in 2018

Banks sell portfolios of non-performing loans to improve their balance sheets and also to meet requirements laid down by banking regulators and supervisors, who in Portugal see such ‘toxic’ assets as the main weak point of the country’s banking sector.

The six largest banks operating in Portugal accelerated their sales of non-performing loans in 2018, with at least €5.719 billion having been passed on in this way, according to Lusa’s calculations.

Although Novo Banco – the successor entity to Banco Espírito Santo, which was wound up by the Bank of Portugal – is not to present its 2018 results until 1 March, at the end of the year it informed the market that it had sold to investment funds as many as 102,000 loan contracts for €2.15 billion.

Banco Montepio has also not yet presented its 2018 results but has disclosed that at the end of 2018 it had sold 10,000 loans worth €239 million to a company in Ireland.

As for the banks that have presented their results, Caixa Geral de Depósitos (CGD) last year sold €1.2 billion in non-performing loans and Santander Totta sold €1 billion in property loans, much of this from the former Banco Popular.

BCP on Thursday announced that it last year sold loans of €730 million, while BPI by November had sold €400 million.

Last year saw several of these banks step up sales of non-performing loans, in a bid to take these problem assets off their balance sheet. However, such moves can have a negative impact on results if there is a need to find the difference between the loans’ balance-sheet value (usually after write-downs) and the amount for which they are sold.

The CEO of Novo Banco, António Ramalho, said in January that the sale of more than €2 billion in loans had resulted in “a loss of less than 6%”.

The finance director of Santander Totta, Manuel Preto, said at a news conference earlier this month that sales of non-performing loans had had an “impact on the accounts of virtually nil”, and that this showed that the loans had been assigned their correct value in the accounts.

The CEO of BCP, Miguel Maya, said on Thursday that the €730 million in loans sold resulted in a loss of €49.4 million.

As for BPI, its sale of €400 million in loans led to a loss of €17 million.

In January, the US credit rating agency Moody’s noted that Portugal’s banks were clearing their balance sheets at a faster rate than previously and predicted that this trend would continue in 2019. But it warned that despite the lower volume of non-performing loans the total amount of such loans on their balances sheets remains a major constraint for most banks.

Last week, the Organisation for Cooperation and Development (OECD) advocated in its latest report on Portugal’s economy that the authorities should take “a more active role” in helping banks clean up their balance sheets, despite recent progress. However, it acknowledged that EU rules on state aid present some obstacles to such measures.

Non-performing loans in Portugal’s banking sector as a share of total loans are more than three times the European Union average. In mid-2018 they accounted for 12% of all loans on the banks’ books.