By Stelios Orphanides
Hellenic Bank’s preliminary agreement to sell €145m of non-performing, non-retail secured and unsecured loans to Norway’s B2Holdings ASA is a credit positive for the lender, Moody’s Investors Service said.
“The sale is credit positive for Hellenic Bank because it reduces its nonperforming exposures (NPE) as of September 2017 by 6.2 per cent, helping the bank meet its NPE reduction targets without negatively affecting its profitability and regulatory capital,” the rating company said in an emailed statement on Monday. “The transaction, albeit small, is also the first of its kind in Cyprus, paving the way for additional sales of NPE from Hellenic and other Cypriot banks burdened with large amounts of problem loans”.
Moody’s said that it estimates that most loans included in the transaction had been extended to small and medium size enterprises (SME) and their provisioning coverage exceeded the bank’s average which stood in September at 61 per cent. On top, “for the majority of the loans, legal proceedings have been completed or initiated,” Moody’s said.
Hellenic Bank reported in September a non-performing loans stock of €2.3bn, or 55.7 per cent of the total compared to 58.4 per cent a year before. The completion of the deal with the Norwegian non-performing loans specialist is subject to regulatory approval.
Moody’s said that it expects Hellenic to continue reducing its non-performing loans portfolio this year, after having done so – though at a modest ratio – over the past 11 quarters.
“The deal amounts to around 82% of Hellenic Bank’s NPE reduction in the first nine months of 2017, accelerating the bank’s asset quality improvement,” Moody’s said. “Improving their weak asset quality is a priority for all domestic Cypriot banks”.
The large overhang of non-performing loans of Cypriot lenders consumes sizeable resources and strains their profitability and capital, the rating company said. It added that as a result of the size of their delinquent loan portfolio, banks are constrained in providing lending to the economy which is expected to grow 3.2 per cent this year.
The sale of non-performing loans, made possible after a change in legislation months before Cyprus completed its adjustment programme, “will give banks more options in managing their problematic exposures, in addition to the available tools of restructurings, write-offs, liquidations, and debt for asset swaps,” Moody’s said.
Moody’s assigns Hellenic a Caa1 positive deposits rating and a caa2 baseline credit assessment.