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NPL Sector Awaits the Arrival of New Product

Participants in the discussion on NPLs predicted that the first new asset type to arrive would be failed retail, tourism and leisure ICO (Instituto de Crédito Oficial) loans.

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From left to right: Paula León, managing director of Signum Partners; Guillermo Barquin, partner at PwC; Manuel Enrich, chief investment relations officer at Ahora Asset Management; Íñigo Merladet, strategy & divestments RGI at Banco Santander; and Antonio Fernández, director of business development at Intrum.

Following efforts by the relevant bodies to mitigate the effects of the Covid-19 crisis on the European business and financial system, the next few months will have a different feel, at least in terms of the bad loan market, whether NPLs or REO’s, the experts believe.

“We’re seeing defaults beginning on ICO loans. [The first] to arrive will be retail, tourism and leisure; the most damaged sectors,” said Íñigo Merladet, strategy & divestments RGI at Banco Santander, at the NPL Management Europe 2021 event held a few days ago in Madrid.

Guillermo Barquin, a partner at the consultancy PwC, added, “Covid-19 has brought new products for banks to manage. Many governments injected liquidity into the real economy, and new product will come into our hands, but slower than we expected.”

More specifically, he explained: “We are waiting for the arrival of new portfolios of NPLs, mostly corporate. Reduced regulatory requirements on sourcing have meant that fewer portfolios have arrived in the last two years than we expected.

Intrum’s director of business development, Antonio Fernandez, points to one of the biggest challenges for managers of these NPLs: managing them more efficiently.

“All servicers depend on external brokers. You can be the best servicer in the world, but you don’t sell the assets to investors. We have to focus on how to improve the sales channels to provide value to the assets. He added: “We are looking at different solutions so we don’t depend on third parties. Those who have the best control of the marketing channels will be the best placed to sell liquid and illiquid assets.

Secondary market, an option

The new dynamic is already reflected on the transactional side where some players have carried out various transactions in secondary markets. “At Intrum, we have acquired a secured portfolio from Cerberus. We have investor appetite. There are opportunities and there are investors like us [going after them],” confessed Antonio Fernández.

Mr Barquin added: “Players prefer to buy in the primary market because it is impossible to buy cheaply in the secondary market and they have a higher risk. Those who bought well are now selling in the secondary market.

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