Business File, January-February-March 2017, No. 109
health of their balance sheets, threatening to throw away three consecutive recapitalisation efforts over the course of the past years. It’s a critical effort, as according to recent data from the Bank of Greece, the country’s banking system is having to deal with NPLs equal to 45% of the whole value of their loan portfolios. This is a massive number, eight times more than the EU average of 5.7% (per March 2016 data) and 10 times higher than the respective figure of 4.5% noted in 2007, i.e. prior to the financial crisis which has plagued Greece since the start of 2010.
Perhaps even more worryingly, 82% of the collaterals which the banks have lent against are properties scattered around the country and ranging from small stores and offices to land plots, houses, even warehouses. Many of them are properties provided for business loans rather than mortgages. But, the notion that these real estate assets are “bargains” in today’s market prices, which are 40-45% lower than the level they were back in 2008, couldn’t be further from the truth, as the vast majority of them are of low quality and in less than popular locations, i.e. there’s absolutely no demand for them, even if they were given away for free.
In any case, what’s certain is that the process of dealing with the NPLs and gradually releasing valuable liquidity for the Greek banking system will have to include the handling (selling, auctioning, renting etc.) of tens of thou- sands of properties around the country.
According to data provided by the deputy head of the Bank of Greece Theodoros Mitrakos, 44.7% of real estate mortgages are now “in the red”. Large corporations’ NPLs are 29.1% of the total loans, while the relative percentage for very small businesses and professionals is 67.2%, the highest among all categories of borrowers.
According to George Frangou, head of real estate for National Bank of Greece, “when 40% of the loan portfolio is deemed as non-performing, one has to consider managing the properties which have been used as collateral for these particular loans.” Frangou says that auctions of foreclosed properties should be a “last resort” option for Greek banks.
By contrast, the banks should be flexible, such as offering financing options towards interested buyers of foreclosed properties. Such solutions proved rather successful in Spain, where banks launched mass listings of apartments, accompanied by respective financing packages towards potential buyers. Regarding mortgages issued towards private borrowers, Frangou thinks that among the potential options could be the renting out of the property back to the owner, helping him pay back his loan in the process. Banks could even go as far as creating special portfolios of such leased-back properties, which in turn could be sold as an investment product to foreign investors.
However, it must be said that the task bestowed upon the country’s four “systemic” banks is daunting. For instance, Alpha Bank alone is dealing with about 10,000 properties now on its books, as a result of loans turned sour. According to Evangelos Kalamakis, head of investment banking and investment property department, Alpha Bank has set up an “in-house” department to deal with properties from NPLs. Already, the bank now possesses 30 properties worth over 5 million euros, which must be man- aged, as well as an additional 2,000 properties worth over 2 million euros each. According to Kalamakis, “back in 2012, there was missing the most important part in order to move forward with the sale of the properties we had, i.e. the buyer, due to a lack of liquidity. As such, we elected to turn to the management and the preparation of our portfolio, until the market conditions allowed us a future sale in higher prices than those prevailing back in 2012” he said.
Huge administrative costs
Alpha Bank has already started to test the waters, as it has launched tenders to sell a few of its most prominent properties. These are mainly derived from business loans and are land plots, industrial real estate, offices and retail stores around the country.
Similar tendering auctions have been organised over the course of the past few months from Piraeus Bank as well. The bank recently auctioned real estate worth more than 60 million euros, with buying interest rumoured to be limited, at least at this stage.
According to market sources, banks are burdened with huge administrative costs on a daily basis, just to maintain these properties in their possession; each property has to pay for ENFIA (the local annual tax placed on any property). Additionally, in order to be able to rent or sell any property in Greece, any owner, including banks, has to issue a series of certificates and relative papers, such as the energy efficiency certificate. A conservative cost for all of this paper-work is deemed to exceed 1,000 euros for each property which is in the market for lease or selling purposes. So, barring any political or economic uncertainties, banks will intensify their efforts towards cleaning their books from unwanted as- sets, aiming to minimise their losses as much as possible. Already, a series of investors, including funds and private equity vehicles specialising in real estate loan portfolios’ management, are lining up to make their moves in the Greek market, as the potential for prof- its when the real estate market recovers is enormous.