Asia Pacific NPLs up by 23% to $640bn as portfolio markets emerge

In this second edition of our Deleveraging Asia report, we examine the region’s macroeconomic and banking landscapes with a focus on the market opportunities in China, India and Australia / New Zealand.

Following the global financial crisis, NPL portfolio sales have been largely focused on the European markets. Having reached a record €200bn in loan portfolio sales during 2018, these markets cooled slightly in the first half of 2019, as the measures taken by European banks and regulators have brought NPL levels down to €660bn from €750bn; and reduced the average NPL ratio to 3.1%, down from 3.6% in mid 2018.

Investors are looking to other global markets, where the US$640bn NPLs held by Asian banks – up 23% from the $520bn reported last year – presents a significant opportunity.

Macroeconomic uncertainty continues to prevail at both the global and regional levels, with many Asian nations impacted by the global economy and the ongoing trade tensions between the US and China.

The adoption and implementation of global standards across Asia is renewing banks’ focus on the classification of, and provisioning for, distressed assets. While the full commercial impacts remain to be evaluated, the ongoing process has already highlighted the benefits to be achieved by reducing NPL exposures.

China and India hold 75% of the region’s NPLs

China holds nearly half of the reported stock of Asian NPLs with $296bn up from $254bn last year. The scale of the Chinese NPL market is on a par with even the busiest of European markets with over CN¥380bn (US$56bn) being traded between financial institutions and investors during 2018 alone.
India’s ₹10.4tn (US$160bn) stock of reported NPLs is the region’s second largest. Investors have been establishing Asset Reconstruction Companies (ARC) in the country over recent years to take advantage of the opportunities to acquire NPLs from Indian banks, with sales to date primarily consisting of larger corporate loans.

Opportunities in Australia and New Zealand

Opportunities for strategic deleveraging efforts and an increasing role for non bank lenders are emerging in Australasia. This has largely been driven by recent regulatory measures, notably as a result of the royal commission findings, and follows a similar path to that seen in European markets over recent years, where enhanced regulation and focus on conduct has changed the banking landscape.

Did you find this useful?