Eurobank targets 9% NPE rate at end-2021

Eurobank is aiming to reduce its nonperforming loans index to less than 9% by the end of the year through its new securitization process, which bears the name “Mexico” and is planned for this year, amounting to 3.3 billion euros.

The bond securitization will be incorporated into the second asset protection scheme, or “Hercules 2,” that the government is preparing, and according to Eurobank chief executive officer Fokion Karavias’ announcement on Wednesday, the losses from the securitization will be covered by the group’s profits, without needing a share capital increase.

The Eurobank chief explained that thanks to the Mexico project the lender will become the first bank in Greece to secure a single-digit nonperforming exposures rate within 2021, including estimates regarding the impact of the pandemic. The index is projected to drop further to 6% in 2022, approaching the European average.

The Mexico securitization, combined with an additional composite securitization of performing loans – estimated to amount to about €2.5 billion and planned toward the end of the year – will allow Eurobank to reduce its credit risk, releasing provisions and improving profits.

Karavias stated the bank is looking forward to asset returns of 10% in 2022 and a dividend distribution in 2023. The lender may have a cap in raising capital up to €1 billion, but Karavias explained that this is only a possible option that is not in the bank’s plans.

At end-2020 the bad loans of the group amounted to €5.7 billion, and according to planning they will fall to €3.5 billion at end-2021 and to €2.6 billion at end-2022. About 20% of the loans in the pandemic’s moratorium, totaling €4.9 billion, are expected to enter nonperforming status, while by the end of 2020 loans of €3.3 billion had already emerged from frozen status. Another 13% concerns loans mainly of the tourism sector that will have their suspension status lifted within the year.

Corporate loan issues came to €6.4 billion in 2020 and deposits increased by €2.4 billion. Earnings before provisions came to €865 million, beating expectations and highlighted the bank’s resilience, Eurobank stressed upon releasing its 2020 results on Wednesday. Net profits amounted to €544 million, up from €257 million in 2019.