Novo Banco to sell €1.75Bn of debts and loan defaults

Portugal’s Novo Banco, led by António Ramalho, is to try and offload its loan defaults on the markets.

The portfolio of loan defaults is estimated to be worth €1.75Bn according to sources quoted by Debtwire.

Debtwire says that the portfolio that will be put up for sale is the largest ever in Portugal. Most of the debts refer to the failed Banco Espírito Santo bank (BES) which collapsed in 2014.

The debt will be sold in lots: the first will include a sum of €550 million with loans from 54 large companies, while the second lot of €1.2Bn refers to the credit defaults from more than 62,000 companies.

The bank, which has not made a statement, has contracted Alantra, KPMG and Morgan Stanley for sell these credit defaults and the bank is said to be also contacting potential investors with proposals likely to be presented in October.

Novo Banco, which resulted in the winding up of BES IN 2014, has high levels of credit default on its books.

According to accounts regarding the first half of 2018, the total value of loans made stands at €30.7 million with 27% of these loans credit default.

That said, non-performing or credit default loans are not “bad” loans all the time. Investors come in and pick such assets which if held for some time will result in a good profit. In fact it is common practice for banks to factor in that 5% to 8% of loans will “go bad” and for banks to sell off bad debts to third-party collection agencies.