BY Fraser Tennant
European banks are currently holding €1.9 trillion of unwanted loans - around 4 percent of European banking assets - according to new PwC research published this week.
The research, contained in PwC’s ‘Portfolio Advisory Group Market Survey 2015’, predicts that it will take another five years (at the minimum) for the banking sector to fully get to grips with the loans issue.
The PwC research also forecasts that portfolios with a face value of €100bn will trade in 2015.
Last year, banks sold loan portfolios with a face value of €91bn, an increase of around 40 percent of the total volume of loan portfolios sold in 2013.
The PwC research also shows that: (i) Italian banks hold more non-performing loans than any other European country, estimated by PwC to be some €185bn, which is roughly 15 percent of total non-performing loans across Europe; (ii) significant growth is expected in the number of transactions in Italy and other countries in Central and Eastern Europe; and (iii) loan portfolio transactions in Italy in 2014 totalled just €8bn and PwC expects a total of more than €15bn in 2015.
“There remains very significant investor interest in acquiring banking assets as the sector continues its unprecedented and much needed restructuring," said Richard Thompson, global leader for portfolio transactions at PwC. “There is significant competition between the numerous investor groups looking to acquire assets and, as a result, we’ve observed price increases in the market, making it much more attractive for banks to sell assets.
“Our research shows that investors’ return expectations are largely unchanged over the previous years, leading us to believe that investors are being more bullish as to their potential cash flow returns from these assets. In other words, more of the upside potential is being priced into these deals, particularly in the more liquid markets in the UK, Spain and Ireland.
“This trend favours the established investors in the market, which is likely to lead newer investors to focus on the emerging markets for loan transactions of, for example, the CEE region and Italy.”
Coinciding with the Market Survey this week is the publication of PwC's analysis of buyers and sellers of loan portfolios, which reveals that private equity (as well as other classes of investors) are currently holding more than €70bn to be spent on assets being sold by the European banking sector.
Report: Portfolio Advisory Group Market Survey 2015