Greek lender Alpha Bank ACBr.AT is in talks to sell its bad debt portfolio.

Greece has the highest bad debt ratio in the European Union.

The sale of the Galaxy wallet is expected to reduce Alpha’s non-performing exposure ratio (NPE) to 24% from around 43% and its non-performing loan (NPL) ratio to 13% from 30%, a source said. close to the agreement.

The bank has chosen U.S. investment fund Davidson Kempner as the preferred bidder to buy a $ 12 billion portfolio of non-performing loans in what will be Greece’s largest bad debt sale, sources told Reuters .

The portfolio, known as Galaxy Project and worth € 10.8 billion ($ 12.81 billion), also includes the divestiture of Alpha’s bad debt management unit, Cepal .

Davidson Kempner valued the assets at around 290 million euros, beating a competing bid from U.S. investment giant Pacific Investment Management Company (PIMCO), one of the sources said.

Alpha Bank declined to comment as Davidson Kempner and PIMCO were not immediately available.

The sale, which is expected to be finalized by the end of 2020, is the most significant attempt by a Greek bank to clean up its balance sheet amid fears that the proportion of bad loans to businesses and individuals is rising due to the COVID. -19 crisis.

Banks get rid of bad debts, normally at a fraction of their face value, to free up their balance sheets in order to make new loans and maintain both their own operations and their savings.

Alpha kicked off the process earlier this year, attracting initial interest from a series of bidders, including Italian companies Cerved CERV.MI and Credito Fondiario, the sources said.

But only Davidson Kempner and PIMCO made firm bids and moved on to the final stages of the auction, with Alpha’s board selecting Davidson Kempner as its preferred bidder after a board meeting on Friday.

Cepal, with a workforce of around 900, will manage the bad debt portfolio that Davidson Kempner is expected to purchase, in addition to non-performing loans from other parties. It currently manages a little less than 30 billion euros of bad debts.

Another source said Davidson Kempner’s offer comes with an attractive compensation package and limited contractual protections.

The decision to negotiate a deal with Davidson Kempner could be announced early next week, the sources said.

It follows a similar deal by Greece’s Eurobank to sell 80% of its FPS loan service unit to Italian debt collection firm doValue DOVA.MI as well as part of the mezzanine and junior notes of a bad debt securitization of 7.5 billion euros known as Project Cairo.

Alpha Bank has asked to integrate Galaxy into a Greek government program, dubbed Hercules, which provides state guarantees on senior securitization tranches.