European non-performing loans (NPLs) held by banks have increased to EUR1.2trn driven mainly by reported increases in Italy, Greece, Spain and Ireland, says PwC in its latest market update.
PwC tracks the volume of European NPLs and also the market for non-performing and distressed lending portfolios that’s grown up around it.
Richard Thompson, partner, PwC, says: “We don’t see a meaningful reduction in non-performing loans across Europe any time soon. Aggregate levels of NPLs could continue rise over the coming years, adding further to the already buoyant portfolio market.”
The first eight months of 2013 have seen EUR46bn face value of European loan portfolio transactions, exactly the same amount that traded in the whole of 2012. At the beginning of this year PwC forecasted a 2013 total of EUR60bn and it looks as if this number will be exceeded. PwC is currently lead advising on portfolio deals with a face value of EUR8bn which are expected to complete in 2013.
The sale and purchase of non-core loan portfolios are made in the context of the continued and significant deleveraging challenge facing many of Europe’s largest banks – the majority having established non-core equivalent divisions or their equivalent to focus on selling or running down unwanted assets. PwC has previously estimated that European banks have identified over EUR2.4trn of unwanted loan assets. Commercial real estate (EUR15bn) and unsecured retail loans (GBP10bn) are the most actively traded loan portfolios so far this year.
The UK tops the 2013 transaction table with an estimated face value of EUR13bn in transactions in the year to date, up from EUR10bn last year for the whole of last year. The UK market has been characterised this year by the EUR4bn of commercial real estate loan transactions completed. PwC expects UK deals to reach over EUR15bn for the full year. A large number of unsecured portfolio sales have also contributed to an increase in unsecured retail transaction volume.
Six countries (UK, Germany, Spain, Ireland, Italy and France), reported NPLs in excess of EUR100bn in their banking systems at the end of last year, making a total of nearly EUR900bn in these six countries alone. In the first half of next year, a review of banking assets by the European Central Bank will inevitably cover NPLs.
Thompson says: “We are seeing extremely high levels of competition in the market at the moment. Whilst the major US funds are the most active we are seeing increased interest from other sources, including sovereign wealth funds and far eastern investors. We know of over 150 different investor groups who are taking a close interest in this market.
“Although there are a large number of transactions at the moment, there remains very high demand from investors for all asset classes. As the banks try to position themselves to meet the Basel III capital requirements and react to the ECB's stress tests following the Asset Quality Review we expect more assets to come to market in 2014 and beyond.”