Piraeus Bank, the country's largest lender, plans to strengthen its capital position in 2020 through operational profits and a bond issue in a move that will allow it to securitize 7 billion euros of non-performing loans.
According to a plan presented by Piraeus Bank chief executive Christos Megalou on Monday to investors and analysts, the lender will pick up the pace of reducing bad loans sitting on its balance sheet. Non-performing loan (NPL) reduction targets are being brought forward by a year with the help of Greece's asset protection scheme, dubbed Hercules, and the securitization of 7 billion euros of bad loans.
With these front-loaded moves, the bank is aiming to reduce NPLs from 49 percent at the end of 2019 to some 15 percent by 2022 with a further drop to single digits on the cards by 2023.
In a bid to reach these targets, the bank will move ahead with the 5 billion euro Vega securitization project and the 2 billion euro Phoenix project. This means that the target to slash NPLs in 2020 is being increased to 11 billion euros, up from 6.4 billion euros previously.
The additional securitizations will weigh on the bank's capital adequacy ratio by 1.8 percent, amounting to damages of 700 million euros in 2020. According to the plan, a tier 2 bond worth some 500 million euros will be issued to help boost its capital position.
In order to prevent the losses from triggering the issuing of new shares, as dictated by Greece's deferred tax law, the lender will spin off its banking operations and create a new Piraeus Bank, while the current one will be converted into a holdings group (that will 100 percent owned by new Piraeus Bank) based on the model already adopted by Alpha Bank and Eurobank.
The Phoenix project is expected to move ahead immediately with non-binding bids expected to be submitted on it in March. The bank sees the deal being completed by July. In regards to the Vega project, non-binding bids will be submitted in July with the goal of winding up the transaction by December.
"The drop in non-performing loans that are scheduled for 2020 will rise to about 11 billion euros, resulting in the NPL ratio dropping to 30 percent by the end of 2020, versus the initial target of being close to 40 percent," said Megalou.