Moody’s argues that Eurobank’s increased targets for a bigger reduction in its nonperforming exposures is credit positive.
“The lower level of NPEs, which we believe the bank can achieve, is credit positive because it will reduce the bank’s downside risks on solvency and intensifies its efforts to normalise its balance sheet through further asset quality improvements and rationalisation through loan sales and liquidations,” says.
According to Eurobank’s revised plan, its NPEs will decline 400 million euros more by the end of this year and by the end of 2019 compared to its initial plan, reducing the stock of NPEs to 12.1 billion euros thus Eurobank will reduce its NPE balance to 15.6 billion euros by year-end 2018 and 12.1 billion euros by year-end 2019, compared to the initial plan’s projections of 16.1 billion euros by year-end 2018 and 12.5 billion euros by year-end 2019.
Moody’s expects Eurobank to marginally outperform its targets for 2017 owing to the sale of a 1.5 billion euros portfolio of nonperforming unsecured consumer loans in October 2017 to Intrum Justitia AB (Ba2 positive), a leading European debt purchaser.
“The transaction reduced the bank’s on-balance-sheet reported stock of NPEs by around €620 million without affecting its income statement or regulatory capital. It also provides an opportunity for the bank to earn fees through its NPE servicer subsidiary,” Moody’s says.
Eurobank aims for a similar transaction in 2018 to reduce its NPE balance, while improvement in the country’s economic conditions will enable further loan curing through restructurings, Moody’s reckons.
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