Bank of Cyprus offloads €545 mln toxic loans portfolio

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Bank of Cyprus has reached an agreement with funds affiliated to Pacific Investment Management Company LLC (PIMCO), for the sale of Non-Performing Exposures (NPEs) with a gross book value of €545 mln.

The bank said the “Helix 2 Portfolio B”, had a contractual balance of €783 mln comprising 16,000 loans, mainly to Retail and SME clients, secured over 4,000 real estate collaterals.

The net book value of the assets amounts to €244 mln.

The gross consideration amounts to 44% of the gross book value and 31% of the contractual balance payable in cash, of which 50% is payable on completion and 50% is deferred up to December 2025 without any conditions attached.

The consideration can be increased through an earnout arrangement, depending on the performance of Portfolio B.

The transaction reduces the stock of NPEs by 22%.

Overall, the pro forma NPE reduction for 2020 amounted to €2.1 bln reducing NPEs to €1.8 bln and the NPE ratio to 16%, including Helix 2 (Portfolios A and B) and an organic NPE reduction of €600 mln.

At completion, the transaction is expected to be broadly neutral to the bank’s capital ratios.

Upon the payment of the deferred consideration and without taking account of any positive impact from the earnout, the Transaction is expected to have a 14 bps positive capital impact on the Group’s CET1 ratio.

The loan credit losses on Portfolio B, expected to be recorded in 4Q2020, is estimated at €27 mln.

The completion of Helix 2 Portfolio B will be aligned with the completion of Helix 2 Portfolio A and estimated to occur in the second half of 2021.

Bank CEO Panicos Nicolaou said that the transaction was another milestone in the Groups’ de-risking strategy.

He added that despite the on-going challenging market conditions, the Bank has signed the sale of €1.4 bln NPEs in the last six months (Helix 2 Portfolios A and B), reducing NPEs in 2020 by €2.1 bln, from €3.9 bln to €1.8 bln, and the NPE ratio from 30% to 16%.

“We will continue to assess the potential to accelerate the decrease in NPEs on our balance sheet through additional sales of NPEs in the future.

“We are now better positioned to manage the challenges resulting from the impact of the on-going COVID-19 crisis, and to support the recovery of the Cypriot economy”.