The Sky Tower reaches up into the sky like a rocket at lift-off. Standing 137 metres tall it is Romania’s highest office building and a landmark in the capital city of Bucharest. The Romanian real estate market has grown rapidly in recent years – not quite with the speed of a rocket, but with considerable thrust nonetheless. According to a current survey of Romania’s largest property portal, Imobiliare.ro, one out of three inhabitants of the country’s six most populous cities is contemplating buying, selling or renting a house or a flat. This trend reflects the situation throughout the entire region. The accounting firm Deloitte observes a recovery in the property markets of Central and Eastern Europe as the economic recovery continues. Deloitte notes that an increasing market value of securities for non-performing loans (NPLs) secured by real estate makes the purchase of NPL portfolios all the more interesting for investors. At the same time, Deloitte is seeing a growing willingness on the part of banks to sell secured NPLs.
In light of this development, in 2016 two EOS subsidiaries set out to begin a new chapter in their corporate histories: For the first time, EOS in Romania acquired a comprehensive B2C portfolio secured by real estate. ‘It comprises 5,400 loans to 3,900 private individuals at a nominal value of 370 million euros’, explains Managing Director Georg Kovacs. In Croatia, EOS Matrix also celebrated a premiere: ‘We purchased a secured B2B receivables portfolio, a first for us’, recalls Managing Director Barbara Cerinski. Both EOS subsidiaries have expanded their expertise in property since the initial transactions.
In April 2016, EOS Matrix established a department in Croatia which specialises in the assessment and handling of secured B2B portfolios. ‘It is made up of 20 employees who are lawyers and specialists in corporate banking’, says Ms Cerinski. When a portfolio is purchased, the experts are involved in the bidding procedure from the very beginning. The seller initially provides them with select data on the receivables contained in the portfolio. On the basis of these data, the experts conclude a rough assessment of the portfolio and put in an initial, non-binding bid. Afterwards they receive detailed information on the portfolio. ‘The challenge lies in the fact that we do not have access to historical data, as each secured portfolio is unique in its composition’, explains Bernhard Melischnig, Executive Director for Corporate Collection at EOS Matrix in Croatia. ‘When performing the assessment, we estimate the market and the value of every single security. We also determine if the receivables and the securities are legitimate’. To accomplish this, EOS Matrix works together with external experts such as lawyers and real estate agents. All of this culminates in the final bid. ‘We always strive to present the seller with an offer that is fair’, explains Mr Melischnig.
Fairness also remains a priority after the sale is concluded. For example, in most cases the portfolio purchased by EOS in Romania is secured by the borrower’s own home. Therefore, EOS approaches matters with great care. The processing team is made up of 25 specialists, most of them lawyers. ‘They analyse every single case in order to find a solution that is best for both the debtor and EOS’, says Adrian Boghiu, Co-Managing Director of EOS in Romania.
Foreclosure is always viewed as a solution of last resort. ‘Generally, we offer a 12- to 24-month payment plan that includes a larger payment when it ends. This affords debtors the time to refinance their loans or generate new sources of income and thus keep their home’, elaborates Mr Boghiu.
The example of a Romanian priest is a case in point to illustrate just how highly EOS values amicable solutions. He provides a place to go to for socially disadvantaged families in his village. ‘We succeeded in finding a solution that enabled him to keep his house. In doing so, we have helped him as well as many people in his parish’, says Mr Boghiu.
Some debtors do, however, decide to sell their property in order to pay down the loan with the proceedings. EOS provides assistance for these cases too. ‘We help the owner to put the property up for sale and ensure that he is able to sell it at a fair price’, adds Mr Kovacs.
EOS always approaches a purchase prudently and in accordance with the Group’s Code of Conduct. ‘Ultimately, a transaction will be worthwhile for the seller only if his reputation does not suffer in the process’, says Ms Cerinski.
There is a good chance that this first purchase of secured debts in Romania and Croatia will not be the last for EOS. It is possible that the banks in the region will make greater use of portfolio sales to improve their balance sheets in the future. Deloitte believes that the upward trend in the sale of NPLs secured by real estate, which has been observed in Central and Eastern Europe since 2016, will continue. In any case, the experts at EOS are ready for further transactions.
Bad portfolios or wrong purchase prices?The answer is given by Claus Wieland, Head of EOS Risk Management
‘We are optimally positioned for debt sales’Marwin Ramcke, Member of the EOS Group’s Board of Directors and responsible for the Eastern European region
Marwin Ramcke has been a Member of the EOS Group’s Board of Directors and responsible for Eastern Europe since January 2017. In this interview he explains how EOS intends to continue to grow in the region.
Mr Ramcke, what is the growth strategy you are pursuing in Eastern Europe?
Marwin Ramcke: We are now represented in 15 Eastern European countries and are therefore well positioned in the market. In most of these countries, we are the market leader for processing unsecured debts. We want to continue to expand this pole position. To accomplish this we will enhance our debt collection processes with the aid of new IT solutions as well as other means. I also want to strengthen existing customer relationships and develop new ones.
How do you intend to achieve this?
Marwin Ramcke: In 2015 we also started investing in secured debts. Last year, we succeeded in concluding major transactions, particularly in markets such as Romania and Croatia. We want to maintain that momentum this year as this is where we see further opportunities for growth.
What trends do you see in sales of non-performing loans, NPLs for short?
Marwin Ramcke: The volume of individual NPL transactions in Eastern Europe has been growing for the past two years. One reason is that sellers of secured and unsecured debts have been combining them into large receivables packages. At the same time, the number of our competitors has sharply increased. However, our international presence and long-term experience gives us an advantage over many other purchasers of receivables. This is because large NPL transactions are now often extremely complex. In order to make the best transnational use of our extensive know-how we have recently established a Transactioncenter NPL secured.
What advantages does the Transactioncenter NPL secured provide?
Marwin Ramcke: The employees are specialists in the purchase and processing of secured debts packages. The structuring and valuation of portfolios of this nature and the negotiations with sellers are very complex. The Transactioncenter NPL secured experts coordinate the exchange between the EOS company in the respective country, the employees involved in the project at the EOS headquarters in Hamburg, Germany, and the portfolio vendors. They therefore ensure that we are able to make attractive and reliable offers to the sellers. Once the acquisition is complete the specialists also spend a lot of time on site to guarantee that the receivables are efficiently processed. In this area, too, we must be better than our competitors if we are to continue to be successful in the market.
‘NPL portfolios set to increase’Professor Dr Christoph Schalast of the Frankfurt School of Finance
The European Central Bank (ECB) intends to use new guidance to speed up the reduction in non-performing loans. Professor Dr Christoph Schalast of the Frankfurt School of Finance explains what this means for banks.
The large volume of non-performing loans (NPLs) held by European banks has long been a problem. Why is the ECB now giving banks guidance on how to reduce their NPLs?
Christoph Schalast: The initial spark was probably Italy’s Banca Monte dei Paschi di Siena, which got into trouble again in 2016. However, more than anything, non-performing loans on the books of many banks inhibit lending to trade and industry. In September 2016 the total NPL portfolios held by the major banks in the Eurozone amounted to 900 billion euros. This demonstrates that the wait-and-see attitude of many banks has still not solved the problem. Therefore, the ECB has now put together appropriate procedures for dealing with NPLs. The guidance demands that banks with large NPL volumes reduce them.
Which banks is the ECB’s guidance aimed at?
Christoph Schalast: It is aimed at the banks which are directly regulated by the ECB, in other words, large banks in the Eurozone. This will also affect their international subsidiaries. In addition, it will be indirectly relevant to the smaller banks, which are not directly regulated by the ECB, but by national supervisory bodies, such as the Federal Financial Supervisory Authority (BaFin) in Germany.
What lies in store for the banks?
Christoph Schalast: Banks with large NPL volumes need to develop a strategy for dealing with their NPL portfolios. The ECB mentions suitable measures, such as working out, selling and writing off NPLs, and seizing assets. The ECB expects the financial institutions to set quantitative targets for reducing NPLs. They are also expected to work out a timetable for implementing their strategy. This guidance is not legally binding but the ECB, through banking supervision, will scrutinise on a regular basis what progress the banks are making to reduce their NPLs.
What effects do you expect the ECB guidance to have?
Christoph Schalast: It is anticipated that, in addition to banks, insurance companies which issue loans will have to comply with similar risk management requirements and reduce their stock of non-performing loans or keep them at a low level. Overall, the number of NPL portfolios available for sale is set to increase. This applies particularly in the Balkan States and in Southern Europe – in other words, the regions predominantly affected. By selling NPLs, the banks will reduce the risks in their receivables portfolios and increase their inflows of liquidity, thereby enabling them to concentrate more on their core business.
Robots might be constructing buildings in the not-too-distant future. Hadrian 105, the commercial prototype of Australian company Fastbrick Robotics, builds the shell of a small one-family home in just two days – a task that takes a team of bricklayers four to six weeks. The robot calculates the location and size of each brick needed and then lays them accurately using a grappler. In this fashion, it is able to lay up to one thousand bricks an hour – around the clock.