Gearing up for a new peak in NPLs

Deleveraging Europe 2021

Deloitte’s annual deleveraging report examines key NPL loan portfolio sales and possible emerging trends across Europe. The report provides an up-to-date overview of the latest transactions supported by forward-looking insights provided by our Portfolio Lead Advisory Services experts, investors and clients. We also launch our detailed interactive “Deleveraging Dashboard” with the report and this provides an in-depth view of the transactions in our deal tracker.

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The COVID-19 pandemic cast a shadow over 2020 like no other event in recent times, resulting not only in a public health crisis but also an unprecedented event-driven economic and societal challenge.

Containment measures to halt the spread of the virus saw the European loan portfolio market effectively go into deep freeze during the first half of 2020, with resumed activity during the second half of the year driven largely by government guaranteed NPL securitisation schemes.

As a result of coordinated government support measures and the expected lag effect from the initial economic shock, defaults and insolvencies are still moderate across Europe, with many stakeholders waiting to see the impact that the unwinding of government support measures will have.

Banks facing potential increases in NPLs need to get ahead of the issue by focusing on legacy portfolios and building their workout capabilities; in the meantime, NPL investors should expect a gradual increase in activity and a busy next few years.

Key themes highlighted in this report include:

  • Portfolio markets went into deep freeze in early 2020, even with some markets renewing deal activity in the second half of the year, deal volumes dropped c60%.
  • Italy (c.€44.0bn of transactions in 2020) and Greece (c€12.4bn) drove European deal volumes in 2020 largely using government guaranteed NPL securitisation schemes. Both countries demonstrated good levels of NPL portfolio sales in H2 2020 driving improved NPL volumes and ratios.
  • The average NPL ratio across EBA banks has continued to fall (to 2.6% at Q4 2020), reflecting a reduction in NPL volumes, unprecedented levels of government stimulus and regulatory forbearance measures, and a rise in total loans and advances.
  • Since the start of the pandemic, €900bn of European loans have received support through EBA eligible moratoria, of which 70% were granted by banks in France, Spain and Italy making these jurisdictions potential hotspots as measures unwind.
  • Despite overall declining trends in total NPL volumes across Europe, repeat lockdowns and the level of loans still under loan moratoria mean that higher new NPLs are widely expected and may reach peaks not seen since the global financial crisis.
  • In anticipation of a deterioration in asset quality, the largest European banks covered in this report provisioned c€118.1bn in 2020, near double 2019 levels of €54.5bn. Banks are however starting to tail off or reverse provisions given growing confidence from asset quality improvements and macro recovery.
  • Legacy portfolios, where disposal processes were paused as a result of the pandemic, are likely to be the first brought back to the market. So far in 2021, transactions totalling €29.1bn have closed, with an expected additional €70.2bn in the pipeline for the year, bringing it close to 2019 levels of €119.2bn.

How to use the report findings

  • Use the data to explore loan sale activity and trends in key markets across Europe, including the key players and asset categories in each market.
  • Loan portfolio buyers and sellers: identify the most active players in the European market.
  • Debt investors: discover which markets are likely to present the largest investment opportunities.
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