Finding Solutions To Loans Problems

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Tuesday February 08, 08:47

Finding Solutions To Loans Problems

(by Olivia Cohen)

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Management consultancy Droege & Comp in Düsseldorf, Germany, estimates
that German banks deal with about 300 billion euros of bad loans, not a
pleasant reality for German banks and favorable ground for debt
investors who could use these great opportunities. So analysts say that the
first bonds followed by future expected recoveries on the loans – a
process called securitization – should come shortly.

German banks used to restructure or extend a loan in case of bad debts
but lately they started to dump some of the bad debt that according to
Dresdner Kleinwort Wasserstein analysts could be up to 10% of all
loans. And this is exactly where NPL securitization comes to market. More
then 10 billion of NPL were sold in 2004. The accord which becomes legal
in 2007 means banks will have to hold more money in reserve to cover
NPLs-money that could otherwise be used more profitably for new loans.

“Recently there has be reasonable NPL trading activity in the German
trading sector, and many of the buyers are setting up special servicing
platforms and looking to acquire further NPL portfolios”, said Ronan
Fox, director and co-head of European commercial mortgage-backed
securities ratings at Standard & Poor’s corp. in London.

Securitization was used before to help damaged banking systems to
recover from banking crisis. For example, in Europe securitization helped
banks get more than 32 billion euros in bad loans before the state voided
the tax breaks that had encouraged the transactions.

Some people are skeptical of Germany’s prospects pointing out that
securitization is just one of the ways for banks to clean up their balance
sheets. Although German banks have a lot of bad debt they are not
forced sellers and selling at a discount means painfully realizing losses.
Under German legislation selling loans became a more complex process and
foreclosing is long and difficult.

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