Interview: “The secured receivables market is all about relationships”
Agustín Lozano Meléndez-Valdés, Secured Consultant at EOS Spain, and Bernhard Melischnig, Managing Director at EOS Croatia, are both experts in the field of non-performing secured loans. Spain is relatively new to this type of portfolio, whereas for the Croatian team, it has been a core part of operations for years. It’s time for some knowledge sharing in the group with insight into two very different markets and a look at the current economic setting.
- The secured receivables market is all about relationships and the post-deal process.
- There are significant differences in terms of market maturity per country.
- The EOS Group can respond to all manner of investment opportunities.
- Inflation, Covid, and the war against the Ukraine war are impacting this market too.
Secured receivables are backed by solid collateral. If they are backed, why would banks want to sell them?
Banks have to reserve capital for these defaulted exposures, and instead of their capital ratios being used to place new loans, their risked weighted assets (RWAs) are consumed by NPLs. In many cases, the defaulting payers have already used up all their loan prolongation, reprogramming, or payment moratorium options, and there is no other solution for the bank except to execute or sell the secured NPLs. This brings cash flow, helps its balance sheet structure, and even creates positive profit and loss (P&L) statement effects in case the selling price is higher than the net book value of the sold exposures. Moreover, the bank can focus on its core business – which is definitely not managing problematic defaulted loans.”
This is a competitive marketplace. Why should banks sell their portfolios to EOS?
Bernhard: “I totally concur. Our organization and infrastructure allow us to be highly professional and efficient, and our prime objective is to offer defaulting payers fair treatment and a solution they can afford. Furthermore, our legal experts can deal with complex legal situations. This enables us to move forward on cases that were totally stuck while the debts were in the hands of the bank. Case managers covering the economic part of the workout know how to structure transactions and are able to find the proper investors and partners necessary to solve secured NPLs.”
Our organization and infrastructure allow us to be highly professional and efficient, and our prime objective is to offer defaulting payers fair treatment and a solution they can afford.
What expertise does EOS have that particularly stands out in the market?
Agustín: “Let me come back to the previous point. Our whole organization is geared toward offering a clear-cut and amicable post-deal process. And so, like Bernhard, we continue to invest strongly in our local expertise, support, and know-how. Since we are relatively new, we are also investing heavily in further growing the relationships with the regional banks so that we understand their situation as much as possible. Dealing with secured receivables is all about taking care of all stakeholders, especially vulnerable consumers, and practicing socially responsible behavior and transparency in all activities.”
To what extent can EOS make investments?
EOS Spain is relatively new to the market, yet successful. What advice would you give to others looking to get into this market?
The EOS Group’s scope of operations is large. Is this a homogeneous market, or are there regional differences that need to be taken into account?
Our whole organization is geared toward offering a clear-cut and amicable post-deal process.
How is the market for secured NPLs developing in your country? And as a whole?
Agustín: “The market in Spain is slightly different, I think. We have been surprised recently. Our projections last year indicated 2022 would be a good year, but it is turning out to be an outstanding year. Spain is very much a real estate-backed country with respect to debts, and Covid put it on the defensive in terms of selling NPLs. Now that we seem to be coming out of the pandemic, banks are selling again and there is a massive wave of investment opportunities. Where investors were careful over the last couple of years, they are again looking for areas to place their money. As matters stand, we have some 30 portfolios on our books and are expecting even more as the year develops.”
What are your ambitions for the future?
Bernhard: “Our ambition is to retain our leading position in the Croatian debt purchase and servicing market. To do so, we will adopt our products and services and remain engaged in social topics such as CSR and ESG. In terms of product development, this especially includes digitalization, including robotization, but also going into new business fields such as real estate development. Of course, this has to be backed by being a good and appreciated employer. The financial industry remains a people game.”