HB portfolio of € 2.3 bln in NPLs moves to APS

Hellenic Bank, the island’s third largest lender that escaped a state bailout when the banking system collapsed in 2013, has sold its non-performing loans and real estate management business to a joint venture controlled by Czech distressed debt and recovery experts APS Holding s.a.

The distressed portfolio worth about EUR 2.3 bln and 150 mln worth of other assets, also helped boost APS Holding’s managed assets in central and eastern Europe from EUR 5.1 bln to 7.5 bln.

Distressed loans or NPLs in the Cyprus banking system account for just under a half or about 47% of the national loans portfolio of EUR 50 bln.

But remaining true to Cypriot traditions, the sale of the business, that will benefit the bank with a pre-tax accounting gain of about EUR 20 mln and a 30bp on its CET1 capital ratio, was marred by an all-out strike organised by the Etyk union on Friday, the last day of June and the busiest for customers who had received their paycheques.

The militant bank employees’ union alleged that the 120 staff moving from the bank’s recoveries unit to the new venture would not enjoy their present rights.

However, the bank gave assurances that all benefits, including low-cost loans and generous contributions to pension funds, would be respected.

With the employment status of the 120 no longer in the banking sphere, Etyk leaders are worried that their union membership could be waning, as all banks could consider resorting to new ventures to dispose of the heavy NPLs on their books. Bank of Cyprus, as well as the state-owned Co-operative Central Bank have established in-house recovery and asset management units, but have not closed the door on standalone units or joint ventures to deal with NPLs.

In another sign of the union’s slowing influence, some 200 staff at Hellenic Bank defied Etyk orders and showed up for work at the head office in Nicosia and other nonbranch operations.

In January, Hellenic Bank announced it was setting up APS Debt Servicing Cyprus Ltd., with Prague-based APS Holding a.s. taking a 51% managing control in the venture and the bank retaining 49%. The transfer of business was on July 1, while APS Cyprus commenced operations on Monday, July 3.

Hellenic said in an announcement that APS Cyprus is acquiring the operations of the bank’s internal Arrears Management Division (AMD), “including the necessary resources to independently carry out the servicing of non-performing loans and real estate assets. Simultaneously, the bank has executed a 10-year service level agreement with APS Cyprus for the management of the bank’s non-performing loan and real estate portfolio (NPL and REO Portfolio).”

The bank retains the ownership said NPLs and REO portfolio.

APS Cyprus assumed all operating expenses associated with the management of the bank’s NPL and REO portfolio including the costs of payroll, IT licenses, processes, products, services and other operations related overheads. In all, 129 employees from the bank’s AMD moved to APS Cyprus, headed by Kiki Papadopoulou.

Non-performing loans with a value of EUR 2.3 bln and real estate assets worth EUR 150 mln will be managed by APS Cyprus in consideration for an administration fee payable by the bank, comprising of both a fixed and a variable element that will depend on the progress of collections and successful resolution of the portfolio.

Hellenic Bank said that the consideration for the sale of the business is EUR 20.6 mln, comprising an upfront consideration of 13.7 mln, including the bank’s contribution, and

of

the a deferred consideration of 6.9 mln.

The accounting gain before tax from the transaction is EUR 19.9 mln, with a pro forma positive impact of 30 basis points on the Common Equity Tier 1 capital ratio, based on financial statements dated March 31.

The bank added that the transaction is consistent with the Group’s strategy of “fixing” the balance sheet by tackling asset quality problems and “building” the franchise by expanding the business in a risk prudent way. Furthermore, it is in line with the ECB, IMF and EBRD guidelines on the management of NPLs. Through the creation of the first debt servicing platform in the Cypriot market, the bank will be able to effectively tackle its non-performing loans in an accelerated way and with higher recoveries, leveraging on the knowhow, proven expertise and technical experience of APS Holding.

The bank said it will also be in a stronger position to focus its resources on managing and growing the performing loan book “by seizing opportunities both domestically and internationally.”

The establishment of a debt servicer is expected to facilitate the price discovery for problematic loans and help the development of a market for distressed assets in Cyprus, attracting international investor interest for such assets and expediting the resolution of problem loans.