A post-conference summary of discussions prepared by Manuel de Macedo Santos, Head of Portugal, Alantra
IMPACT ON CREDIT INSTITUTIONS
  • Regulators: On the one hand, there is a wide range of monetary and fiscal stimulus packages across Europe and this has managed to frame market expectations and seems to have led to near-term stabilisation in the financial sector (850 bn in moratoria have been implemented across EU, waivers on liquidity and capital requirements and main regulatory-driven exercises put on hold, e.g. Stress Test, ICAAP, etc.)
  • Asset quality: On the other hand, lenders should expect some deterioration in asset quality and a subsequent increase in portfolio impairments as loans will migrate from Stage 1/2 to Stage 2/3
  • Credit institutions: In Portugal, the main banks seem to be focussing more on profitability, increasing net interest margin and how to deal with surplus liquidity, rather than on capital and asset quality– It is true that the NPE ratio in Portugal has drastically decreased from c18% in Jun-16 to c5.5% in Jun-20, a trend continuing in 3Q20, but banks now face a potential new wave of NPEs which will require additional operational support and extraordinary capital and asset management measures
IMPACT ON SERVICING
  • Industry: There was a quick reaction by servicers in Portugal demonstrating an ability to navigate uncertainty and preserve portfolio performance to the extent possible
  • Collections: It seems unanimous that during the lockdown collections have drastically decreased, in part due to the paralysation of all courts and restrictions in notaries. This drop in inbound collections is obviously uneven across asset classes, unsecured being the most affected
  • BP: Regarding BP underwriting, investors and servicers (once again depending on the underlying assets) have increased the WAL in their BP vs. pre-covid, and reflected an uneven impact on price (prices of residential has been the most resilient, maybe followed by office, and then logistics assets while CRE, retail & hospitality are the most affected)
  • Strategy: Maintain the out-of-court recovery strategies + focus on cash-in court to decrease the stock and accelerate CF + changes in RE strategy from sale to lease to preserve return waiting for the market to return
  • Opportunity: A new wave of NPEs is definitely seen as a business opportunity for servicers as soon as lenders are willing to sell and bridge the bid-ask gap + the other opportunity being to support working units of the banks in dealing with new NPL inflows and stock (i.e. acting as outsourcers)
  • Success Factors: Main success factors for the servicing industry in 2021 are market experience, technology and team motivation
IMPACT ON INVESTMENT OPPORTUNITIES
  • NPL & REO market: While the NPL & REO market has practically stopped from March to August with the majority of the processes put on-hold being delayed, the market seems to be back with strong investor appetite demonstrated on recent portfolios (e.g. Pool 52 & 53 from Santander, 10 bidders on Project ZIP from Norfin, 8 bidders on Project Webb from BCP, strong appetite on Project Lime from BPI, and Wilkinson and Carter from Novo Banco are also expecting strong competition)
  • Financiers: 3rd party financing is getting back to the market to leverage NPL and REO operations but with increased cost and covenants, i.e. margins have moved up and LTV down lowering prices and expanding the bid-ask gap
  • Opportunities: Portfolios will mainly come from primary sales in 2021, with some secondary sale in case the market allows
  • Structuring: While outright sale will likely remain the preferred asset deleveraging structure for sellers, securitization has the potential to become increasingly important as it enables access to an extended investor audience with different return expectations

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