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Legal & Real Estate// ISSUE: TOP IBERIAN Investors
78 // iberian.propery / 2016
by:
João Torroaes Valente and Hélder Santos Correia
| Lawyers
1. FOREWORD
As at December 2016, the share of non-performing loans (“
NPL
”) in the
banking sector’s total portfolio in Portugal was 19.5%
1
. The major Portu-
guese banks paid EUR 16million per day in NPL and other impaired claims.
According to studies by the EU authorities, the key factors for NPL res-
olution are the legal and judicial systems.
In Portugal, the major obstacles mentioned in relation to the judicial
system were the following: (i) lengthy insolvency proceedings – often
due to a shortage of judges; and (ii) complex insolvency proceedings
2
.
Furthermore, as recognized by the European Central Bank (“
ECB
”), even
if a sustainable restructuring solution has not been reached each “
bank
is still expected to resolve the non-performing exposure. Resolution may
involve initiating legal procedures, foreclosing assets, debt to asset/equity
swap, and/or disposal of credit facilities/transfer to an asset management
company/securitisation
”
3
.
A TROUBLED REAL ESTATE
ASSET RELIEF PROGRAMME
IN PORTUGAL?
2. DEBT DELEVERAGING STRATEGIES
2.1 General overview
Strategies to deleverage banks’ balance sheets, through segregation of
assets (notably with “
bad banks
”) are no novelty.
The striking issue here is that these strategies
“«are back». The concept
is simple. The bank divides its assets into two categories. Into the bad pile
go the illiquid and risky securities that are the bane of the banking system,
along with other troubled assets such as nonperforming loans. (…) The bad-
bank concept has been used with great success in the past and has today
become a valuable solution for banks seeking shelter from the financial crisis.”
4
Even before the most recent financial crisis, a number of countries ex-
peri¬enced systemic distress in terms of private debt and bank NPLs.
The first experiment on these strategies occurred in the US, in 1988,
with the Mellon Bank and the bank created for this purpose: the Grant
Street National Bank
5
.
In Europe, the model in this matter was Sweden, in 1992, where
“most
bad assets from state-owned Nordbanken, the country’s third largest
bank, were transferred to a separate asset management company (an
“AMC”), Securum”
6
.