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.
Read past editions of our Deleveraging Europe series and other NPL publications:
2018 Q3 Deleveraging Europe, November 2018
2018 Deleveraging Europe: Focus on France, December 2018
2017-2018 Global deleveraging report, April 2018
2017-2018 Deleveraging Asia, April 2018
2017-2018 CEE NPL study, January 2018
2017 H1 Deleveraging Europe, July 2017
2016-2017 Deleveraging Europe, February 2017
2016 H1 Deleveraging Europe, August 2016
2015-2016 Deleveraging Europe, February 2016
2015 CEE NPL study, November 2015
2015 H1 Deleveraging Europe, August 2015
2014-2015 Italian NPL outlook, 2014
2014 CEE NPL study, 2014
2013 CEE NPL study, 2013
2012 CEE NPL study, 2012