European loan sales reach €103.3 billion for 2016 as ECB calls for bank balance sheet clean up

• Italy had the highest amount of NPLs at €36 billion in 2016
• Deloitte expert predicts European loan sales could surpass €200 billion in 2017

Sales of European non-performing loans (NPLs) and non-core assets (NCAs) totalled €103.3 billion in 2016. This includes €36 billion of deals in Italy, up from €17.3 billion in 2015, according to analysis from Deloitte.

By volume, Italy completed 43 deals, followed by Spain with 30 deals last year. Moreover, at the end of 2016 Italy had another €40 billion in ongoing loan sales, with €29.5 billion ongoing in the rest of Europe.

Deloitte estimates loan sales reached €13 billion in the UK last year, a decrease of 68% on the €40.3 billion in 2015, reflecting the clean-up that has already taken place in the UK banking sector.

David Edmonds, global head of portfolio lead advisory services at Deloitte, commented:

“I believe European loan sales could surpass €200 billion this year. The ECB is sending very clear signals to the banking sector that it’s time to deal with the ‘hangover’ of NPLs left over from the last financial crisis and start focusing on future lending. Recent ECB guidance requires rigorous bank self-assessments and detailed NPL strategies, which by implication will need to show significant reductions in NPL stocks. In recent weeks we have even seen ECB officials calling for state supported ‘bad banks’ to hive off NPLs.”

Across Europe, the top sellers of NPLs were UniCredit, NAMA and Bank of America while the top buyers were Fortress, Cerberus and Lloyds Banking Group.

David Edmonds concluded: “The buyer community continues to raise equity in pursuit of European distressed debt opportunities and demand remains very strong. For the last 4-5 years the focus has been on strengthening bank capital, surviving stress scenarios and avoiding bank failure.

“We certainly aren’t out of the woods on that score, but there is now a shift toward lending growth, which is being held back by the presence of non-performing loans. There is currently more than €2 trillion of non-core assets still on European bank balance sheets. Selling these types of assets not only improves capital positions, but allow banks to resume normalised lending levels, with a direct, positive effect on the wider economy.”

End

Notes to editors

These findings are taken from the Deleveraging Europe 2016-17 report, available from Deloitte.

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