A total of €74.4 billion of real estate debt and bank-owned property was sold during 2015, forming the bulk of the €104.3 billion of loan portfolios traded during the year, according to new research published by Deloitte.
Some €37.7 billion of loans and real estate-owned (REO) property sales backed by commercial assets were completed during 2015, with €18.5 billion of sales ongoing at year end. A total of €36.7 billion of residential loans were sold with €500 million ongoing.
The overall volume of loan sales was up 26 percent from 2014, according to Deloitte’s Deleveraging Europe 2015-2016 report. Loan portfolio sales are expected to reach €130 billion during 2016 as European financial institutions tackle more than €2 trillion of non-performing assets, the firm predicted.
Increased regulation and capital requirements for banks and insurance companies as a result of Basel III and Solvency II were cited among the drivers of loan sales.
Deloitte warned that the supply of price-accretive loan-on-loan financing for large-scale deals might prove challenging, although it added that buyers with strong track records and solid relationships with lenders will continue to drive the market.
Italy, Spain, the Netherlands, Ireland, central and eastern Europe and south-eastern Europe are all expected to be active markets in 2016, while performing loan sales are expected to increase rapidly in more mature markets.
In the UK market, residential loan sales reached £32.7 billion, while there was £5.3 billion of CRE and REO loan sales. The report noted that there is an increasing trend towards sales of performing loan portfolios including UKAR’s sale of the £13 billion Granite portfolio and GE’s exit from the bulk of its GE Capital business. UKAR is expected to sell its $17 billion Bradford and Bingley portfolio, the report noted.
The Irish market slowed down in 2015 as banks have deleveraged significant portions of their debt piles. Total loan sales were €22.8 billion, down 19 percent from €28 billion in 2014. Ongoing sales in Ireland included NAMA’s €1.5 billion Project Tolka, its €700 million Project Abbey and its €350 million Project Lee.
The Spanish NPL market is expected to be active in 2016 on the back of signs of economic recovery in the country. Around €20 billion of volume was placed onto the market last year, although only €8 billion was reportedly closed. An estimated €148 billion of NPLs are still held on banks’ balance sheets in Spain as of September 2015.
The Italian loan sale market is growing fast on the back of strategic sales by Italy’s largest banks, Deloitte said. In total, there were €17.4 billion of completed loan sales by the end of 2015, up 36.7 percent from the previous year. However, little was real estate: completed CRE loans accounted for €400 million and residential property accounted for €600 million. The Italian parliament’s recently-approved reforms to the recovery process for distressed loans is expected to spark further market activity.
The German market is expected to remain cautious. During 2015, €4.6 billion of CRE loan sales were completed, with €1.6 billion ongoing, forming the bulk of the market, in which Commerzbank was the most active seller. Last year saw an increase in activity from German institutions as a result of improving economic conditions in the country.
In the Netherlands, just €770 million of CRE loans were sold, although €5.29 billion of sales were ongoing at the end of the year, including the €4.9 billion sale of Propertize. Project Lucas, the €420 million CRE NPL portfolio sold by Van Landshot to Cerberus in September 2015, was the first open auction of a sizeable Dutch portfolio.
Dutch loans exposures are highly concentrated within seven banks and asset management agencies: ING, ABN Amro, Rabobank, SNS Reaal, Propertize and NIBC hold above 87% of the assets in the country.
The central and eastern Europe market did not take off as some had predicted. Deloitte’s figures show that just €300 million of CRE loans were traded during the year and €200 million of residential. Romania was the main focus of activity.