Press releases

CEE NPL markets on the peak?

Strong dynamics with shifting focus

Zagreb - 7 March 2018
Deloitte's report on non-performing bank loans (NPL) has been published for the sixth time, providing an overview of the main developments of the CEE banking sector, analysing the evolution of key NPL metrics as well as the dynamics of loan portfolio markets. As a novelty this year’s issue is analysing two additional countries, Ukraine and Bosnia and Herzegovina increasing the coverage of the study to 14 countries.

While non-performing loan portfolio disposals picked up in 2016 with just over EUR 7bn face value of completed deals in the CEE region (based on publicly available deal information) the enhanced debt sales market activity continued in 2017. The most active CEE markets with the highest volumes of portfolios sold in recent years were Romania, Hungary, Croatia as well as Slovenia. Although corporate NPLs are still the most actively traded loan portfolios, some investors have already turned their interest towards residential mortgages.

Considering the twelve countries in the CEE region (excluding Ukraine and Bosnia and Herzegovina) covered by Deloitte’s report, the volume of non-performing loans saw a considerable decrease from EUR 51bn in 2015 to EUR 44bn in 2016. Together with Ukraine and Bosnia and Herzegovina the volume of NPLs amounted to EUR 61bn in the CEE region as of end-2016. The Ukrainian banking sector is heavily impacted by non-performing loans accumulated during the economic and political crisis.

Uroš Kalinić, Director in Financial Advisory Services described the region's position as follows: "As UK and Irish debt sales markets mature, activity of NPL markets significantly increased in Central and Eastern Europe and in the Mediterranean regions. Similarly to 2016, the improving macroeconomic conditions as well as the upsurge of real estate markets remained the main catalysts for non-performing loan sales in the CEE region in 2017. Access to cheap funding contributed to investors’ enhanced financing capacity, thus giving an impetus to the demand side. With regards to the supply side, regulators and local authorities in many geographies developed measures to urge financial institutions to dispose distressed as well as non-core assets. Investors who already built their servicing capacity and gained experience in portfolio servicing in the CEE region are likely to be involved in NPL transactions going forward in order to increase their portfolio exploiting advantages arising from economies of scale. On the other hand, Deloitte expects only a limited number of new investors to enter the CEE region in the forthcoming years due to the decreasing transaction pipeline. In addition, larger packages are offered for sale in the Mediterranean region compared to the portfolios traded in the CEE debt sales markets which are more attractive for many international investors, therefore focus of such investors is expected to shift towards these geographies in the forthcoming years. All things considered, the current market momentum prevailing in the CEE region gives an opportunity for both NPL sellers and buyers to complete a successful, value maximizing portfolio sale transaction.”

Deloitte predicts that the sale of non-performing assets will remain the most common deleveraging option among banking industry players in the CEE region in 2018. However, with a number of corporate NPL transactions being completed in the recent past, sale of residential mortgage portfolios is expected to increase in many countries. Investors have already committed significant resources to the Hungarian market. In the long run, activity of NPL markets in CEE is expected to gradually subside as incumbent banks will wind down their existing NPL volumes to a sustainable level. Deloitte also predicts that the activity of secondary NPL markets will increase in the forthcoming years. Besides this, market of performing bank loan (PL) transactions and banking entity deals are expected to pick up in alignment with the long-awaited consolidation of the fragmanted CEE banking markets.

Deloitte is a leading advisory firm in loan portfolio transactional advisory globally, in Europe and in the CEE region. In the past years Deloitte conducted deleveraging projects and bank loan portfolio transactions in the value exceeding EUR 500 billion globally, both on seller and buyer side. In the past four years Deloitte advised its clients on deleveraging projects and loan portfolio transactions covering over EUR 6 billion of assets across the CEE region.

Download study: Benchmark Study on Non-performing Bank Loans

Uroš Kalinić, Director in Financial Advisory Services
Uroš Kalinić, Director in Financial Advisory Services
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