Greece and Cyprus—Two Different NPL Journeys

In this commentary, DBRS Morningstar analyses the different paths Greece and Cyprus took in their nonperforming loan (NPL) resolution journey, and with the Greek Hercules Asset Protection Scheme’s (HAPS) expiry and the banks’ NPL ratios reduced, the evolving role of securitisation in NPL resolution.

Summary highlights include:
-- Strategies that Greek and Cypriot banks used to reduce NPLs, such as securitisation with and without asset protection programmes, direct sales to investment funds, and asset management companies;
-- Structural differences between HAPS securitisations and public Cypriot NPL securitisations initiated by investment funds that purchased the NPL portfolios;
-- Servicer concentration and workout strategies; and
-- The ongoing role for securitisation in NPL resolution.

“Going forward, in addition to the standard NPL securitisations on smaller NPL portfolios, we could see more specialised portfolios that are securitised by the banks, portfolio purchasers or sold out of existing securitisation transactions, the analysis of which in certain cases requires a combination of DBRS Morningstar's NPL and other structured finance methodologies. The information requirement also varies based on the portfolio type and the transaction structure, such as rating reperforming loan portfolios and real estate owned asset selldowns”, stated Sinem Erol-Aziz, Vice President of European NPLs at DBRS Morningstar.