The practice of selling non-performing loans is now well established in the Cypriot market as well as in any other country whose banking system is facing such problems.
Starting in 2017, Cypriot banks began to discharge non-performing loans in an effort to reduce their interest rates and improve key financial indicators. An investigation by the company WiRE FS, secured by “Φ”, has recorded all the transactions of recent years, which are related to the sale of non-performing loans. The beginning was made in 2017 with a “trial” operation during which the Bank of Cyprus provided a package of non-performing loans to CDB Bank. The “Zeus” project, as it was named, was worth 22 million euros and was allocated to the book value of the portfolio.
The baton was taken by Hellenic Bank, which was the first to sell a package of red loans to a specialized management company from abroad. Through the project “Semele”, Elliniki allocated a portfolio totaling 144 million euros. The loans were acquired by B2Kapital and concerned 1,082 borrowers for 1809 financing agreements.
This was followed by the largest operation to date, which concerned the project “Helix 1” of the Bank of Cyprus. The agreement with Apollo Global Management was announced in August 2018 and concerned a loan portfolio and real estate with a gross book value of 2.8 billion euros. The specific portfolio concerned 14,024 loans to large and small enterprises. It is worth noting that although the initial agreement was for sale at a price of 1.4 billion euros, however, it was eventually reduced to 1.2 billion euros, due to repayments made in the interim. The amount repaid ended up in Apollo, as provided in such cases.
A few months later, Bank of Cyprus announced the sale of another portfolio, codenamed “Velocity 1”, which concerned unsecured retail banking loans totaling 245 million euros. The particularly troubled portfolio, with a book value of just € 34 million, was acquired by APS Delta. As Niki Tsivitanou, CEO of WiRE FS, characteristically explained to “F”, this agreement may seem of comparatively small value, but these cases are the most difficult to handle and those that have the highest cost. “Indicatively, Velocity 1 involved nearly 10,000 highly troubled borrowers, most of whom were natural persons,” he explained.
In 2019, no loan sale agreements were announced, however, in January 2020, Bank of Cyprus announced an agreement for the “Velocity 2” project. The non-performing loan package had similar characteristics to those of “Velocity 1” and this time was acquired by the B2Holding Group. The specific portfolio had a nominal value of 398 million euros and a book value of 133 million euros. The loans concerned about 10,000 borrowers, the vast majority of whom were private individuals (approximately 8,400) while several loans were also granted to small and medium-sized enterprises (approximately 1,600).
Two years after the agreement for “Helix 1”, the Bank of Cyprus announced the agreement for the project “Helix 2 (a)”. The buyer this time is the capital management giant Pimco, which would acquire loans with a book value of 916 million euros with a contractual balance of 1.46 billion euros. Although the book value of the loans was significantly lower than “Helix 1”, nevertheless, they included much more loans. A total of 22,224 loans mainly to customers of retail and small and medium enterprises which had as collateral 5,616 properties.
In October 2020, it became known that another major player in the non-performing loan market was entering the Cypriot market. The reason for Bain Capital, which bought the loans included in the project “Marina” of the company CAC Coral, ie the non-performing loans of the National Bank of Cyprus. The loans had a book value of about 325 million euros and were acquired at 31% of their book value, ie for about 108 million euros.
About a month ago, the latest transaction in the Cypriot market of non-performing loans was announced. Bank of Cyprus announced a new agreement with Pimco, for the project “Helix 2 (b)”. The package includes loans with a book value of 545 million euros with a contractual balance of 783 million euros. Upon completion of the agreement, an additional 16,000 non-performing loans linked to 4,000 properties will leave the bank's portfolio.
Different reading
Explaining the difference that is almost always observed between the book value of loans and the price at which investors eventually acquire the loans, Niki Tsivitanou explained that banks and investors use different criteria for calculating the value of these loans. “Investors are looking for a higher rate of return on investment and significantly take into account the length of the recovery process (litigation and non-litigation), so it is an important parameter to consider in their assessments,” he said. At the same time, in order to estimate the value of a loan, they take into account the expected cash flows and the total cost that their management will have, which results in a significant reduction in their value. On the contrary, banks, following international accounting standards, value their value much higher.
Managers and the management process
As it is known, in addition to the buyers of non-performing loans, an important role is played by their managers who are the ones who at the end of the day will complete their difficult management process. The non-performing loans of Alpha Bank Cyprus, amounting to a total of 3.2 billion euros, are managed by the Italian doValue. Astrobank's non-performing loans are managed by Trusset Asset Management, 74.9% of which is controlled by Quant Master Servicer Cyprus Limited. The company manages loans of about 500 million euros and real estate worth 140 million euros. Quant belongs to the Qualco group, in which Pimco is a shareholder. In relation to the loans of the Co-operation, as it is known the manager is Altamira Asset Management, which belongs to the same group as doValue. The non-performing loans of Hellenic Bank are managed by APS Debt Servicing Cyprus Ltd which started as a joint venture between Greek and Czech APS but is now fully controlled by Hellenic Bank. The loans obtained by the investment fund Apollo Global Management from the Bank of Cyprus (“Helix 1”) are managed by Gordian Holdings, which is also their owner.
The bad bank scenario
As Niki Tsivitanou comments on the possibility of transforming the state-owned KEDIPES into a national company for obtaining non-performing loans, as Finance Minister Konstantinos Petridis recently revealed to “F”, he may differentiate the banks' plans for further sale of non-performing loans. “Especially for loans for first home or main business, for which we have seen particular political sensitivities, banks may have to wait for the government's plans to be finalized before making final decisions, although they themselves are under pressure from supervisors. to reduce their problem loans to single digits “, he concluded.
