How do we work with loans?
Our loan management and sale work is not easy, and the results are not immediate. We began in an extremely complicated position: we had around 90,000 loans with a high default rate, valued at around €40,000 million, guaranteed by around 400,000 properties (houses, land, retail units, offices, hotels…) and a limited period to liquidate them. Our tasks began with the meticulous review of our portfolio, analysing the potential of each loan to gain value before being sold.
What three options do we have to liquidate a loan?
Recover the entire debt for as many loans as possible
The ideal alternative for Sareb would be to continue collecting the debt and the interest from the debtor within the established periods, until the loan is completely paid off. But one has to remember that, in most cases, they are complicated loans, with high default rates, which is precisely why they were transferred to Sareb.
In order to liquidate these assets, Sareb employs an active management strategy with the debtor. During the company’s first years of life, we developed debt restructuring schemes and Sales Growth Plans (SGP). The second formula allowed us to collectively sell the properties that guaranteed the mortgages, enabling the developers owing the loans to cancel them.
As the years have passed, the loans remaining in our balance are bad debts, which is why we decided to transform loans into properties.
Transform loans into properties
The most interesting alternative to maintain the value of Sareb’s financial assets, is also the one that requires the most work, and which takes longer to execute. It is a medium-term strategy with which, rather than selling these loans in the wholesale market, in an initial phase we convert them into properties, which are more liquid and easier to selling in a second phase.
We transform loans into properties in one of the following ways
- Enforcement process: if the collaboration between Sareb and the debtor is not possible, enforcement proceedings may be initiated.
- Dation: in collaboration with the debtor, Sareb cancels the debt in exchange for the property that guaranteed the loan.
- Bankruptcy proceedings: in the event of bankruptcy proceedings, Sareb negotiates with the debtor and with the administrator in bankruptcy to recover the debt, or part thereof, with the provision of a property.
Selling the debt in the wholesale market
The most direct alternative available to Sareb to liquidate the loans is to sell them. Although it is important to note that they are high-default-loans, or non-performing-loans. And so they are more attractive to institutional investors in the wholesale market, a significant discount needs to be applied to their nominal value. This sales formula, therefore, implies a considerable loss of value.