LISBON, July 15 (Reuters) - Portugal’s Novo Banco, controlled by U.S. private equity fund Lone Star, expects to halve its non-performing loan ratio to 10% this year or next, putting it on a par with domestic rivals, its chairman told Reuters.
The bank, which emerged from the ruins of Banco Espirito Santo after its collapse in 2014, shed 3.7 billion euros ($4.2 billion) of bad loans between the end of 2017 and March 2019, leaving it with 6.5 billion euros worth and reducing its bad loan ratio from 28% to 21.8%.
Chairman Byron Haynes said an additional halving of the ratio was key to the bank’s medium-term plans as Portugal’s third-largest lender by assets needed to align itself with local peers.
“Whether that’s going to be a 2019 or 2020 event, let’s see...we need to continue to take advantage of the good market conditions that exist at this point in time,” he said.
The average NPL ratio in Portugal’s banking sector remains high compared to the euro zone average of around 4.5%.
Novo Banco, 75 percent owned by Lone Star since October 2017 and 25 percent by the Portuguese Resolution Fund, has been offloading bad loans, real estate and non-core assets under restructuring commitments agreed with Brussels.
It is currently selling a portfolio of large debtors’ NPLs with a gross book value of more than 3 billion euros and a real estate portfolio valued at up to 500 million.
“The level of interest has been very high...and we expect these transactions to materialise in the near future,” Haynes said, adding that he also expected the insurance market regulator to approve the 190 million euro sale of GNB Vida to Bankers Insurance Holdings in the third quarter.
Analysts have speculated that Novo Banco could eventually be caught up in a wave of Portuguese banking sector consolidation but Haynes pointed to the bank’s standalone business model, including investment in ongoing business, digital banking and franchise development.
“Lone Star and the Resolution Fund fully support this standalone strategy and investment ... Our entire focus now is executing that,” he said. “The agenda is big. The opportunity, I would say, is also big.”
He noted that 80 to 85% of Portuguese financial system assets are split between the five largest players, a higher level of concentration than in most countries.
“We all have our opportunities out there, but I think it’s too early to talk about (mergers),” he said.
Novo Banco posted a 93 million euro first-quarter loss due to its balance sheet clean-up efforts but recurring profit rose more than 3% to 85 million euros with the net interest income jumping 33%.
“The recurrent business is where the growth will come,” Haynes said. “The other one is about how quickly can we de-risk the balance sheet and clean up the legacy issues.”
In March, Canadian rating agency DBRS upgraded Novo Banco due to its improved risk profile. Haynes said he expects decisions by other rating agencies to reflect the bank’s progress.
With a common equity Tier 1 ratio of 13.5%, the bank is comfortable with all its current and future capital needs and discussions on minimum requirements for eligible capital and liabilities (MREL) with the European Union’s Single Resolution Board “are going well”, Haynes said.
$1 = 0.8865 euros Editing by Andrei Khalip and Kirsten Donovan