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News : EU Economy Last Updated: Apr 15, 2011 - 9:01 AM

European banks have €1.3trn in non-core loan assets; Ireland in third rank after Germany and UK
By Finfacts Team
Apr 14, 2011 - 1:36 PM

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Following the financial crisis Big 4 accounting firm PricewaterhouseCoopers (PwC) estimates that European banks are holding more than €1.3trn of loan assets that have been identified as non-core to their businesses. These loan portfolios consist of both performing and non performing loans (NPLs). Banks will spend the next 10 years either running off or selling these assets.

PwC estimates that all told, non-performing loans in the UK topped €175bn for 2010, an increase of 13% from 2009. Germany heads the European NPL table with €225bn outstanding. Ireland is in third place with around €110bn and Spain is fourth with €100bn.

The accounting firm says banks have been deploying a number of tactics to deleverage, but the gap between buyers’ and sellers’ price expectations is still a significant barrier to more deals being done. As well as price, the high degree of strategic analysis and data due diligence required in a more circumspect business climate is significantly slowing things up.

Richard Thompson, partner, PwC, said: “Corporate loan books that aggressively expanded over a short number of years will take the longest to unwind as many contain a large mix of different types of loans which can be difficult to untangle to the satisfaction of any prospective buyer. It is no coincidence that it has been the more homogeneous, higher quality, portfolios that have come to market so far.

“Furthermore, high levels of government support in some markets have allowed the banks a more leisurely timescale for divesting their non core and non-performing loans.”

PwC says the prospects for deleverage vary dramatically in each market depending on the type of loans in question and economic circumstances of each country. For example, international and government pressure in Spain and Ireland has significantly increased expectations for significant loan sales occurring in the next 12-36 months.

PwC estimates that 2009-2010 levels of non-performing loans across major European markets increased by 15%, a lower rate than previous years but still an increase of around € 100bn.

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