Bank of Valletta on Tuesday announced that, following a strategic review of its book of non-performing loans, it has sold a portfolio of non-performing loans for a consideration of €26 million with a view to strengthening the bank’s capital and liquidity buffers, and to ensuring that the bank’s resources are focused on servicing loans with a better prospect of recoverability.

Supported by external advisors, the bank selected the portfolio using pre-defined criteria. The portfolio is comprised of 707 non-performing loans (NPLs) across 245 borrowers, the majority of which have been granted commercial loans to finance business activities across several different industries. The portfolio also includes personal loans, credit card loans, home loans, encroached savings and current accounts and other debts and is significantly biased towards loans and facilities that have been in default for a long period of time, with 90 per cent of the portfolio comprised of loans and facilities that have been in default for five years or longer.

The primary purpose of the transaction is to generate income from NPLs which may have either been completely written off or provided for, in large part, in previous years, BOV said in a statement.  

The current net book value of the portfolio reported in the bank’s balance sheet is in the region of €5 million. In this regard, the transaction is expected to have a positive impact of approximately €18 million on the bank’s profitability for financial year 2023, representing the difference between the accumulated expected credit loss (provisions) and the actual realised loss following the transaction. The amount of €18 million realised in 2023 is net of a provision of €2 million representing potential liabilities arising from the acquirer’s right to make a claim for compensation under certain specific circumstances in terms of the assignment agreement.

The transaction will also improve the bank’s NPL-ratio in line with regulatory requirements, aligning itself better to peer European banks. In addition, the transaction is expected to render other benefits to the bank, such as an improvement in the asset quality of the its credit portfolio as well as removing the need for further provisioning against these debts. The transaction will also improve the BOV’s operational efficiency due to a release of resources which are currently dedicated to lengthy debt collection processes, court proceedings and the ongoing management of the collateral held by the BOV, including their eventual disposal.

The portfolio was sold by way of assignment to a Malta-registered public limited liability company established as a securitisation cell company in terms of the Securitisation Cell Companies Regulations (Subsidiary Legislation 386.16, laws of Malta). As a result of the transaction, the acquirer has replaced the bank as creditor in respect of the relevant NPLs.