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Austrian and CEE NPL Market Update

Deloitte Vienna 24 February 2016

Over 70 interested participants gathered in the Deloitte Vienna office on February 24, to take part in an event dedicated to the Austrian and CEE NPL Market. The event was hosted by Ben Trask from Deloitte Austria with speakers David Edmonds and Amo Chahal from Deloitte UK, Balazs Biro from Deloitte Hungary, Luca Olivieri from Deloitte Italy and Andrei Burz-Pinzaru from Deloitte Romania.

The event brought together executives and corporate professionals from across the banking, financial and investment advisory and private equity industries. The topic sparked a healthy debate between attendees including a lively panel discussion involving Christoph Kampitsch Executive Director, Erste Group Workout and Viktor Levkanic Investment Director from APS Holding SE. The event provided a look back at 2015 and expectations for the future, both in CEE and the wider European market.

2015 was a record year for NPL sales across Europe with a 20% increase in completed loan sales. Activity has moved east, including Central and Eastern Europe, with Italy seeing the most volume in 2015. In CEE, market activity picked up significantly in 2015, with Romanian NPL portfolios dominating the market. 2016 is forecast to see further growth driven by regulatory pressure and an increased focus on return on capital.  We expect to see particular focus on Italy, Spain and the Netherlands, with the CEE region continuing to grow. Completed transactions across Europe are forecast to break €130bn in 2016. Within CEE, the market is forecast to exceed €6bn, with Slovenia and Croatia becoming active markets and Romania continuing to provide a steady stream of NPL portfolio sales.

Beyond 2016, we continue to see an active pipeline with over €2 trillion of non-core or non-performing assets remaining on the balance sheets of European banks. We believe that the pace of deleveraging in CEE will continue to accelerate as investor demand for NPL assets in the region grows. There remains a number of challenges for completing transactions in CEE including: un-tested regulatory and legal regimes, uncommitted sellers, a lack of servicing platforms, and issues with the process and available documentation and data. Investors’ main problem is often the lack of track record in the region; however, Deloitte sees the steady stream of completed and planned transactions mitigating this concern.

The Italian NPL market is expected to see significant expansion in 2016, building on the growth seen in 2015. There is currently more than €200bn of NPLs and more than €320bn of impaired loans are held by Italian banks. Following the Italian government’s agreement with the European Union to introduce new regulations aimed at reducing NPL stocks, Italian banks are now coming under increased pressure to develop deleveraging and wind-down strategies.

In conclusion, following a busy 2015, we expect 2016 to see further growth in NPL sales across Europe and in particular in CEE. Regulations imposed by the European Union are forcing banks to review their NPL stocks and in many cases establish deleveraging and wind-down strategies. We believe balance sheet optimization through NPL portfolio sales will form an effective tool in the bank’s efforts to raise capital, reduce risk-weighted assets and increase market capitalisation.

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