New research by PwC published yesterday shows that European banks are disposing of their unwanted portfolios at a record rate. In the first half of this year, transactions have been completed for portfolios with a face value of around €55 billion, an increase of 20% on the same period in 2014.
As well as increased volumes, higher prices are being driven by continued demand from investors and favourable debt markets allowing investors to leverage many transactions. Continued calls from stakeholders for banks to continue with their necessary restructuring and deleveraging – prompted in part by last year's Asset Quality Review – has acted as a further prompt to a number of banks.
Richard Thompson, global leader of PwC's Portfolio Advisory Group, comments:
"The volume of transactions in the market today is higher than it has ever been, and shows no signs of abating over the next 12-18 months.
“Our analysis shows that banks continue to hold around €2 trillion of unwanted loans which means that the supply of loan portfolios into the market won’t dry up anytime soon."
European transactions currently in process total around €84 billion, and with a flood of new transactions expected to be launched after the summer holiday period, total sales for the year are expected to be close to €150bn - compared to €91bn in 2014.
Driven by a few large deals, the UK market is likely to top the transaction table this year, with a total expected transaction volume of in excess of €60 billion. Transactions for unwanted loans in Germany, Spain, Italy are likely to be around €20-25bn for each country.
PwC's research also shows that over the past five years (2010-2014 inclusive) banks have disposed of loan portfolios with a total face value of around €250bn. UK and Irish based banks have been the largest group of sellers, accounting for half of this total. Spanish banks account for around €45bn with Germany and Italy a long way behind at around €25bn and €15bn respectively, though in Italy’s case, this is soon to change.
Richard Thompson continues:
"Transactions in Italy this year are expected to be greater than the past five years combined.
“Whilst there may well be some turbulence in this market over the next couple of years, regulatory changes, increased investor appetite and a stock of NPLs the highest in Europe mean it will be a significant market for many years to come.
“At the moment we do not see any impact arising from recent events in Greece. Investors have a continued appetite to invest and the debt markets to leverage such transactions remain open.”
PwC identifies loan portfolios backed by real estate as continuing to be the most traded asset class, with around 80% of all transactions completed so far this year being either residential mortgages or lending backed by commercial real estate. This represents an increase from around 70% in 2014.