European non-performing loans (NPLs) held by
banks have increased to €1.2tn (up by nearly €100bn in 12 months) driven mainly
by reported increases in Italy, Greece, Spain and Ireland, says PwC in its
latest market update published today. PwC tracks the volume of European NPLs and
also the market for non performing and distressed lending portfolios that’s
grown up around it. The value of the NPLs have doubled since 2008 and European
banks have an estimated €2.4tn in unwanted loans.
Richard Thompson, partner, PwC, said: “We
don’t see a meaningful reduction in non-performing loans across Europe any time
soon. Aggregate levels of NPLs could continue rise over the coming years, adding
further to the already buoyant portfolio market.”
The first eight months of 2013 have seen €46bn
face value of European loan portfolio transactions, exactly the same amount that
traded in the whole of 2012. At the beginning of this year PwC forecasted a 2013
total of €60bn and it looks as if this number will be exceeded. PwC is currently
lead advising on portfolio deals with a face value of €8bn which are expected to
complete in 2013.
The sale and purchase of non-core loan
portfolios are made in the context of the continued and significant deleveraging
challenge facing many of Europe’s largest banks - - the majority having
established non-core equivalent divisions or their equivalent to focus on
selling or running down unwanted assets. PwC has previously estimated that
European banks have identified over €2.4tn of unwanted loan assets.
Commercial real estate (€15bn) and unsecured retail loans (£10bn) are the most
actively traded loan portfolios so far this year.
The UK tops the 2013 transaction table with an
estimated face value of €13bn in transactions in the year to date, up from €10bn
last year for the whole of last year. The UK market has been characterised this
year by the €4bn of commercial real estate loan transactions completed. PwC
expects UK deals to reach over €15bn for the full year. A large number of
unsecured portfolio sales have also contributed to an increase in unsecured
retail transaction volume.
Six countries (UK, Germany, Spain, Ireland,
Italy and France), reported NPLs in excess of €100bn in their banking
systems at the end of last year, making a total of nearly €900bn in these six
countries alone. In the first half of next year, a review of banking assets by
the European Central Bank will inevitably cover NPLs.
Richard Thompson, added: “We are seeing
extremely high levels of competition in the market at the moment. Whilst the
major US funds are the most active we are seeing increased interest from other
sources, including sovereign wealth funds and far eastern investors. We know of
over 150 different investor groups who are taking a close interest in this
“Although there are a large number of
transactions at the moment, there remains very high demand from investors for
all asset classes. As the banks try to position themselves to meet the Basel
III capital requirements and react to the ECB's stress tests following the Asset
Quality Review we expect more assets to come to market in 2014 and beyond.”
Irish based banks
The IMF has a value of loans of €213.5bn in
June 2013 for what are termed PCAR (Prudential Capital Assessment Review) banks
- - domestic Irish banks subject to local regulation: Bank of Ireland, Allied
Irish Banks, and Permanent tsb.
The 26% NPL rate in the PCAR banks is based on
€56bn of NPLs out of gross total lending of €214bn. Seamus Coffey, the UCC
economist, comments: "Note though that of their total loans the PCAR banks have
around €55bn of loans to UK customers (and some very minor amounts elsewhere).
Their Irish lending is around €160bn and that contains 90%+ of their NPLS. In
their Irish books they have around €52bn of NPLs or a rate of around 33%."
See Page 43
here in IMF's Eleventh Review of Ireland 2013 [pdf]
Ulster Bank a subsidiary of Royal Bank of
Scotland, the Irish unit of Danske Bank of Denmark and Bank of Scotland Ireland,
which is being wound down, have all incurred big losses in the Irish domestic market.
Last week, the European Central Bank included in
its list of Irish banks set to be stress-tested Merrill Lynch International
Bank, headquartered in Dublin, it is a subsidiary of Bank of America/Merrill
Lynch, which was formed by the takeover of Merrill by BofA in September 2008.
In 2012, it reported a loss of $729m and its balance sheet was
valued at $490bn.
Irish Economy 2013: Minister says Irish banks “well capitalised”
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