European banks dispose of unwanted loan portfolios at record rate
August 18, 2015
Our latest European Market Update for Q2 2015 shows that European banks are disposing of their unwanted loan portfolios at a record rate. During 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.
Strong market conditions are driving activity
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 (AQR) – has acted as a further prompt to a number of banks.
A projected 60% year-on-year increase in total sales for 2015
In addition to the c. €55bn of portfolio transactions already completed this year, 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.
Hot spots of activity across EMEA
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, and Italy are likely to be around €20-25bn for each country.
Our 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 followed by Spanish banks, with Germany and Italy a long way behind, though in Italy’s case, this is soon to change.
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, we anticipate that Italy will be a significant market for many years to come.
Top traded asset classes
We identify 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.
The volume of transactions in the market shows no sign of abating over the next 12- 18 months. Banks continue to hold around €2 trillion* of unwanted loans on their books, which means that the supply of loan portfolios into the market won’t dry up any time soon.
*This is a high level estimate based on public information concerning non core assets held and stated objectives around reductions in assets. There is limited information available as to the underlying nature of such assets. Consequently this estimate should be viewed as illustrative in nature only and the total amount is likely to include assets other lending.
Download the PwC Portfolio Advisory Group Q2 2015 Market Update here
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