Insights

Deleveraging Europe 2015 - 2016

February 2016

Deloitte Portfolio Lead Advisory Services takes a look at market activity in 2015 and shares thoughts on the future of the European loan sales market.

Headline numbers

  • 2015 completed sales were €104.3bn, up 26% from 2014's total of €83bn in sales of European non-performing loans (NPLs) and non-core assets (NCAs)
  • Loan portfolio market total sales are expected to reach €130bn in 2016
  • European financial institutions are expected to continue to deleverage as they tackle over €2tr of non-core and non-performing assets

Key highlights in this edition

  • We are starting to see a sustained shift away from portfolios of non-performing commercial real estate loans towards performing, non-strategic residential and SME loan sales
  • The UK was the most active country in terms of loan sales in 2015 with sales exceeding £38bn, the distressed market in the UK is quickly being replaced by significant volumes of performing loan products and we expect the UK to continue to top the country tables in 2016
  • The Irish loan sale market is showing signs of slowing down with activity shifting to Italy, Spain CEE and SEE

Themes influencing NPL transactions

  • Improving investor confidence and regulatory reforms will help pave the way for increased NPL activity in 2016
  • Ongoing retrenchments to home markets and a stricter focus on core businesses and strategic direction are expected to ensure a high level of activity in the portfolio market
  • Increased regulations and capital requirements for Banks as a result of Basel III, Solvency II and IFRS9 continue to stimulate divestitures
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"Non-performing loans are a significant drag on banks overall performance, both financially and operationally. Selling these types of assets becomes a good option to improve capital positions, with banks under increased pressure from regulators and shareholders to clean up their balance sheets.
 

Regulatory changes along with market pressure to improve returns continues to force a further shift in the marketplace with banks also seeking to sell performing, non-strategic loans that don’t fit their return on capital targets. Sophisticated banks are really paring back to core, profitable business lines and either exiting or offloading risk in those areas that don’t deliver their overall strategic objectives and return expectations."

David Edmonds, Global Head of Portfolio Lead Advisory Services at Deloitte

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