Bank of Cyprus, the island’s largest lender, is testing investors’ interest on a non-performing loan portfolio with a nominal value of €7 bn, in what could potentially become one of the largest sales of bad loans in Europe this year.
The lender is understood to have contacted a number of investment funds to explore a sale of the assets which represent Bank of Cyprus’ entire non-performing exposures with the exception of its bad consumer loans.
The size of the deal compared to the island’s economy is seen as the main stumbling block in the sale process which is being managed by Morgan Stanley. Cyprus’ gross domestic product stood at just over $21 bn last year.
‘The market reaction for now is that it is just too big to sell,’ one advisor who asked to remain anonymous told PropertyEU. ‘I think only a portion of this will trade eventually.’
According to well-informed market sources, over 50% of the portfolio is secured against commercial and residential assets as well as plots of land across the island. Corporate and other unsecured loans make up the balance. In addition to the bad loans, the lender is also looking to divest the management platform with around 350 employees.
The second round of bidding begins next week.
According to the bank’s preliminary full-year results for 2017, Non-Performing Exposures (NPEs) amounted to €8.8 bn at year-end 2017, down 20% or €2.2 bn on the previous year’s level. This compares to a total gross loan portfolio per year-end 2017 of €18.7 bn.
The news comes just a month after the country launched the sale of the Cyprus Cooperative Bank, which is 77% state-owned following a financial crisis and bailout in 2013. The bank is the leader in the amount of deposits held by Cypriots, but is saddled with €6.2 bn of NPEs, or nearly 60% of its total loans.
In 2013, Cyprus was forced to accept a bailout deal that included a seizure of unsecured deposits in its two largest lenders.