Sales of loan portfolios by deleveraging banks reached a record €104 billion across 30 European countries last year, according to a new report published by KPMG.
The trend is expected to continue in 2016, with over €32 billion in ongoing transactions in the market, of which €17.5 billion are commercial real estate-related.
Hot spots over the past year included the UK, Ireland, Italy, and Spain, where an aggregate of over €86 billion of transactions closed. The UK recorded the highest volume of loan sales, with over £30 billion (€39 billion) of deals closed in 2015. This number was boosted by the sale of UK Asset Resolution’s £13 billion Project Granite to Cerberus, which was the year’s largest single portfolio sale in Europe.
The report notes that the strong pace of sales is likely to persist into 2017 and there will be more opportunities for non-bank lenders. This is because the so-called “bad banks” continue to wind down their loan portfolios, particularly in the UK and Ireland. The UK’s bad bank, UK Asset Resolution (UKAR), plans to dispose of £800 million of equity-release mortgages, £5.5 billion of self-certified mortgages, and £22 billion of buy-to-let mortgages. It will sell these assets over the next five to ten years.
Ireland’s National Asset Management Agency (NAMA) plans to wind down completely by 2020 after having disposed of its special bond debt. The asset manager is currently in the market with projects Ruby and Emerald which carry unpaid balances of around €6.5 billion in total.
“We are even seeing signs that the tale of two halves between north and south is levelling out,” commented Andrew Jenke, Europe, Middle East and Africa lead partner, KPMG’s Portfolio Solutions Group, on prospects for further European debt sales. “The markets of Italy and Spain have bounced back in 2015, and there is also cause for optimism for the Greek and Central and Eastern European markets where foreign capital, notably from private equity, is increasingly helping banks to reduce their exposure in these markets.”
Intense competition in the UK and Ireland since 2013 has encouraged investors to move southwards to the recovering economies of Spain and Italy. Spain recorded over €15 billion in closed transactions, closely followed by Italy with over €13 billion in 2015.
To attract investment and encourage sales, a more creditor-friendly approach has been adopted by Italy. An emergency decree containing measures to improve tax treatment and to streamline bankruptcy proceedings and the foreclosure process was approved by legislators.
Furthermore, investors are now looking at Greece and Cyprus for future deal flow as the domestic banks are beginning to revive their banking sectors, address problem loans and divest their overseas subsidiaries across Central and Eastern Europe.
The report’s authors also note the revival of asset-backed securitisation (ABS). Regulatory factors such as the relaxation of capital controls under Basel III and the standardisation of securitisations as well as the ultra-low interest rate environment are driving the resurgence.
The increase in activity in 2015 was dominated by the re-gearing of mortgage portfolios sold by UKAR and GE Capital and increasing activity by challenger banks in the UK, said the report. Total issuance stood at €50 billion with strong potential for growth.