Prices of poor performing loan packages down to 10%

Local banks last year sold poor performing loan portfolios worth €285 million, at prices worth 25-35 percent of their accounting value, according to players on the market. In the first five months of 2009 alone, the value of such portfolios sold exceeded the 2008 value, but their price fell significantly.

More than 95 percent of receivables sold by banks are loans without collaterals granted to individuals, and sellers are mostly top 10 lenders in terms of assets. Until last fall, banks were engaged in a fierce battle for market share, granting loans of up to €50,000 without collateral. "Last year, everyone wanted to buy. All were desperate, and buyers were competing on prices. Banks would not even have dreamed of the premium quotas they received. They generally expected to sell at 25 percent of the receivable value, but obtained 37 or 38 percent," according to the General Manager of Coface Romania, Cristian Ionescu, for Business Standard.

Coface did not buy such portfolios, because prices on the market were "highly inflated." "At the beginning of this year, prices started dropping to 15-20 percent of the loan package value, and now they have been thrown onto the market at prices even below 10 percent," Ionescu said.

Among criteria to set the price of a poor performing loan package are their value and how old these are. On developed markets, such portfolios are sold at 3-8 percent of their value.
The average amiable debt collection in 2008 amounted to some 30-35 percent in Romania for consumer loans. However, this dropped to 25 percent or even lower this year, according to Ionescu.

In the first months of 2009, one bank wanted to sell a poor performing loan package worth €200 million. However, in spite of the sharp drop in the acquisition price compared to last year, the bank did not manage to sell, because "there are no longer any buyers," Ionescu said. On the other hand, those who acquired such portfolios last year are now in trouble, because they have significant exposure today, which has eroded their profitability and solvency indicators, he added.

The President of Bancpost lender, Mihai Bogza, told Business Standard that the bank, one of the top 10 players in the local system, did sell such packages in 2008, but has not done so recently. "We are currently working only on receivables collection with debt collection agencies for the moment," he said.

The General Manager of Banca Transilvania lender, Robert Rekkers, said the bank did not close any such deals. When asked whether Banca Transilvania would establish its own receivables collection company, the manager declined to comment. Romania's largest lender, BCR, controlled by Austrian Erste group, recently established such a company.

The CEO of UniCredit Tiriac Bank, Rasvan Radu, said that the lender has outsourced debt collection operations, but did not sell non-performing loan portfolios. Buyers of such portfolios are debt collection agencies, such as EOS KSI, KRUK International, Coface, Credit Express, and Top Factoring, on the one hand, and investment funds and international financial institutions, on the other.

Business Standard