11.9.3 How is this relevant characteristic elaborated in the decisions?

It can be observed that – in addition to assessing the compatibility of an asset relief measure on the basis of the IAC-criteria – the Commission stresses the viability-aspect of an asset relief measure. For instance, in the decision on KBC, the Commission pointed out that the value markdowns on KBC’s synthetic CDO portfolio were the main cause of the bank’s difficulties.1 Consequently, the restructuring plan of KBC had to address the problems of KBC’s impaired assets.

Similarly, in the decision on Bank of Ireland, the Commission recalled that “loans to the real estate sector were at the source of the principal uncertainties in relation to the asset quality and potential impairments” and that “the transfer of those assets to NAMA would allow a stable activity of the bank without uncertainties regarding potential impairments in the portfolio”.2

Likewise, in the decisions on the Spanish banks, the Commission considered that “the segregation and transfer of the assets and loans related to the real estate development sector to the AMC is an adequate response to the high concentrations of the Bank’s balance sheet on the real estate development sector and level of non-performing assets, and its past expansion outside its core retail banking business and historical core regions”.3

These are just a few examples, but the pattern is clear: asset relief measures are not only assessed as State aid measures, but also as viability-measures.

A very specific form of impaired assets are non-performing loans (NPL’s). Several beneficiary banks had large portfolios of NPL’s. This was especially the case for the Greek and Cypriot banks.4 This is not surprising, given the fact that the Greek and Cypriot economies were in recession. As a consequence of a recession, the ability of the households and businesses to repay their loans will be impaired. This, in turn, will result in higher loan losses for the banks (increase in the stock of NPL’s and lower recovery from the existing NPL’s.5

The problem of a large portfolio of NPL’s can obviously be solved by transferring some of the NPL’s to an Asset Management Company. Sometimes, a different solution is chosen: in several cases, a special unit was created within the bank in order to optimise the monitoring and management of problematic loans.6 The creation of such a unit is welcomed by the Commission. The Commission also notes positively that that the resources of that unit will be further reinforced through the redeployment of staff from other functions whereby the group currently maintains spare capacity.7 Interestingly, in Cyprus, a new legal framework was put in place – as part of the MoU conditionality – to facilitate the seizing and pledging of collateral.8