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.