Over the last three years, the value of non-performing loans (NPLs) in the Portuguese banks’ balance sheets has fallen from roughly €55 billion to €25 billion. Following a recent trend, in 2018, Portuguese banks accelerated their reduction of NPLs and, according to the Bank of Portugal, the Portuguese financial sector cut its ratio of NPLs to 9.4%, from 13.3% in 2017.
This is the first time NPL ratios have shrunk below the 10% mark since the beginning of the debt crisis in 2010. Banks are selling portfolios of non-core assets faster, as the bid-ask pricing gap between investors and banks narrows, accelerating the deleveraging of the sector and steering Portuguese banks towards the ECB-recommended sub 5% NPL ratios.
Timing is of the essence
The increase in the number and size of the portfolios available for sale fostered a spike of activity in the Servicing industry. Whitestar Asset Solutions – a leading Servicer in Portugal and part of Arrow Global Group, its single shareholder – has been at the forefront of this wave, supporting a broad range of investors on the back of extensive experience across various asset types, with an established track record spanning more than 12 years in the market.
This boon of activity has brought new investors, new advisors and new servicing players into the Portuguese market, increasing competition to unprecedented levels.
The complexity of the portfolios being offered also increased, both in terms of size and the nature of the underlying exposures (special real estate assets, complex corporate cases, etc). While this creates opportunities for niche servicing players and advisors, larger and more established players, like Whitestar, can offer a “one-stop-shop” solution that supports both new and seasoned investors in the country, benefitting from a longer track record and in-house legal, real estate and collections management capabilities.
To respond to these dynamics and meet market demands, the Arrow Global Group decided to expand its asset management capabilities in real estate through a major acquisition. In December 2018, it acquired Norfin – the leading Portuguese independent Real Estate Investment Manager. With over €1.5 billion of assets under management, Norfin is a success story built over 20 years of significant market changes, including the 2008 crisis, and it is a major boon for the Arrow Group's Portuguese strategy.
The market is changing and players must adapt. It is crucial to understand these changes and respond accordingly.
Even though Portugal is a small NPL market when compared to Spain or Italy, for example, the country offers unique conditions for business:
- benign legal and judicial systems;
- a stable political environment;
- sophisticated servicing industry (i.e., Portugal was one of the first jurisdictions reviving NPL public securitisations, in which Whitestar played an active role, directly involved in the two transactions so far);
These conditions can help investors through all the phases of the investment process (from underwriting to portfolio workouts). Last but not least, let's not forget the great weather, great food and welcoming folk!
But NPLs aren't the only things shaking up the Portuguese banking landscape. The greater pace of non-core assets coming to market is another healthy developing trend for the investors involved in these markets, as new NPL entries into the banks balance sheets dropped substantially on the back of an expansionary economy period, steady decrease in unemployment rate, sustained increase in the exporting sector and, more broadly, across the secondary and tertiary sectors and more sound underwriting criteria from the financial sector.
Reperforming loans, both for companies and households, are an increasing trend.
Whitestar was incorporated in August 2007. Having survived the spin-off from Lehman Brothers, following the bank's collapse, it's been a success story from the onset. Over the last 12 years, Whitestar has become the leading servicing company in Portugal and a point of reference for many national and international investors.
Currently, both Whitestar and Norfin manage nearly €9bn of performing, sub-performing, non-performing and real estate assets, supported by a team of 600 employees across Lisbon, Oeiras and Oporto. In terms of experience, we have a unique track record and experience, managing assets in different economic cycles and always with great results.
After having won two international awards, including International Investor's Best Asset Management Service Provider of 2019, recognition is important to us at Whitestar because it's a sign we're on the right path.
But it is not all about business and numbers. We cannot forget that every day we deal with people. Our employees are paramount to our success, showing up to work every day with a smile on their face and an unshakeable will to do the right thing and strive for success as a team. We are committed to providing long-term sustainability for our employees with a good work-life balance and exciting career prospects.
Our customers, clients and other stakeholders are also crucial for us. Our purpose is to Build Better Financial Futures. There are not many activities where one can so deeply impact people's lives, helping them turn around and rebuild after long, painful periods of personal and social distress. It's a privilege being able to participate in this journey and leading such a great team of professionals.
by João Bugalho, Arrow's Chief Country Officer for Portugal and CEO of Whitestar