Bank of Valletta plc - Sale of a portfolio of NPLs

On 19 December 2023, Bank of Valletta plc announced that the Bank entered into an assignment agreement pursuant to which it has assigned its rights, title, interest and benefits of a portfolio of long-standing Non-Performing Loans (NPLs) for a consideration of €26 million. The bank explained that the consideration reflects, amongst other things, the reduced creditworthiness of the underlying borrowers, the recovery risk inherent in the Portfolio and the cost to acquire and manage the Portfolio over the recovery period. The Portfolio is composed of 707 non-performing loans across 245 borrowers, mostly relating to commercial loans but also includes personal loans, credit card loans, home loans, encroached savings and current accounts and other debts. BOV noted that 90% of the loans have been in default for five years or more.

The acquirer was selected on the basis of a formal offer submitted as part of a bidding process conducted by the Bank and is a Maltese public limited liability company established as a securitisation cell company.

BOV explained that the current net book value of the Portfolio reported in the Bank’s balance sheet is in the region of €5 million, thus 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 bank also stated that 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 Bank’s credit portfolio as well as removing the need for further provisioning against these debts. It will also improve the Bank’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 Bank, including their eventual disposal.