Sweeping changes in management of bad business loans

Monday, November 20, 2017
Sweeping changes in management of bad business loans
Following the sale by individual banks of packages of non-performing loans without collateral at very low prices, the time has come for the first serious effort of domestic, systemic banks to jointly handle non-performing business loans.

Greek private banks have made a commitment to the European Central Bank that mandates a 40 billion dollar reduction by 2019 of all manner of non-performing loans – housing, consumer, and business.

Of that, 23 billion euros will come from business loans, which means that the effective management of such loans is crucial for meeting targets.

The National Bank of Greece (ETE), Piraeus Bank, and Alpha Bank, with the blessings of the Single Supervisory mechanism for European Banks (SSM) have asked Oliver Wyman, a leading global management consulting firm, to find a manager, if not a buyer, for a package of non-performing loans, with the collateral of small-and-medium sized businesses, and a total nominal value of two billion euros. The loan amounts range from two to 50 million euros, with the aforementioned banks as creditors.

Project Solar

The above project, named Solar, was the brainchild of Spyros Papaspyrou, a former general director at Piraeus Bank.

The aim is for the manager of the loans to regain as many loans as possible out of that two billion. The manager will begin at a much lower prices, as banks have based their projections on the two billion sum.

If the manager is able to get back 200 million euros, he or she will receive a 20 percent commission fee.

The new manager will likely have a different modus operandi than Greek banks, which used collection agencies to inundate debtors with constant, annoying phone reminders, with few results.

It is expected that the new managers will be more aggressive, but also offer more solutions to businessmen who choose to cooperate.

They will employee legal offices, supervisors to monitor property auctions, and engineers to valuate the loan collateral.

Separating the wheat from the chaff

In the second phase, bad loans will be divided into categories. These include businesses without revenues and with no chance of repaying, which will face immediate liquidation of their collateral, and secondly, businesses which have a demand for their product but lack the necessary cash flow to fund their own sales.

In the latter case, the manager can provide the necessary capital for a new start, which Greek banks are not in a position to do.

A third category is businessmen who will pay off a part of their loan with their personal assets and assets of the business, and the manager will in turn offer a loan write-down so that the remaining amount can be serviceable with company revenues.

Each employee of the managers will be assigned about 20 loans, and will be remunerated with the same amount that they would receive from the banks. But they will also receive bonuses for amounts they were able to retrieve from bad loans.

There are six firms that have submitted their proposals to Oliver Wyman. These are: doBank (a subsidiary of Fortress), Cerved, Altamira, APS, Mount Street, and Reviva Capital.

Meanwhile, online property auctions are scheduled to commence on 29 November, following a government pledge to protect notaries from violent protests that have until now forced the cancellation of many on-site property auctions at courthouses.