European loan sales on course for 30% fall in 2019 to €140.8 billion

• By the end of 2019, €140.8 billion of deals are expected in Europe, down 30% on last year’s €202.8bn, Deloitte says
• European and Asian NPL stock levels reaching parity for the first time

Sales of non-performing loans (NPL) cooled in the first half of 2019, following a record €200bn in loan portfolio sales during 2018. According to new analysis from Deloitte, NPL sales are on course to end the year at €140.8 billion. Measures taken by European banks and regulators have brought total NPL stock levels down to €660bn and reduced the average NPL ratio to 3.0%, from 3.6% in mid-2018. The NPL ratio refers to the share of a bank’s total assets (loans) which are non-performing (i.e. with no payment on the loan for 90+ days).

Beyond Europe, the US$640bn NPL stock currently held by Asian banks represents a 23% increase from the $520bn reported last year.

Andrew Orr, Global Head of Transactions of portfolio lead advisory services at Deloitte, comments: “Having reached a peak in 2018 of over €200bn, there has been a drop in loan portfolio sales this year and we expect volumes will land at €140bn. This aligns with the €100bn drop in reported NPL volumes in the last year.

"However, there is still a significant amount of capital already raised to invest in loan portfolios across the performance spectrum and across asset classes. While bidder appetite might ebb and flow depending on local market dynamics, there is still a wave of capital available which will keep demand high.

"We now see the total NPL stock in Asia at about $640 billion, not far behind where we are in Europe at €660 billion. That weight of opportunity is a draw for funds, although Europe still remains the core focus of the global loan portfolio opportunity set."

The European market for loan portfolios is now shifting to new asset classes and loan types, including the ‘sub-performing’ unlikely-to-pay (UTP) loans in Italy, real estate owned (REO) assets in Iberia, as well as in the ship finance sector.

Italy and Spain continue to drive European deal volumes, having each seen over €50bn traded in both 2017 and 2018. Portuguese and Aegean banks are still saddled with Europe’s highest NPL ratios despite deal volumes in the countries more than doubling since 2017.

Orr concludes: “Portfolio trades continue to play a significant role in European banks’ deleveraging activities as they address the stock of NPLs held on their balance sheets. The measures set out by the European Commission in its ‘Action Plan to Tackle Non Performing Loans in Europe’ are maintaining pressure on banks and regulators to both address existing stocks of NPLs, and ensure measures are in place to avoid future build ups. This is more of a breather rather than a standstill in this market.”

End

Note to editors

These findings are taken from the latest Deleveraging Europe report and Deleveraging Asia report, available from Deloitte. The reports provides an up-to-date overview of loan portfolio transactions across key global markets (including the UK).

About the research
Unless specified otherwise, all the data in the Deloitte deleveraging reports are based on ongoing tracking and monitoring of deal activity together with public and industry sources, notably Debtwire. This combination of sources limits the detail we can provide on individual transactions or identifiable data segmentation. All data in this report correct as of September 2019.

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