Europe non-core loans reach €64 bln, €80 bln in 2014

2013 was a record year from a transaction perspective with 64 bln euros of Europe’s non-core loans sold as part of portfolio transactions last year, a 40% increase on the previous year, according to PwC’s latest market update. Increased activity levels were mainly driven by the UK and Ireland, along with Spain and Germany.
“We expect that 2014 will be another record year for the European non-core loan market, with activity levels expected to reach an all-time high of around EUR 80 bln. We also estimate that loan portfolios with a total face value of more than EUR 30 bln have closed or are in the process of closing already,” said Stelios Constantinou, Banking industry leader at PwC Cyprus.
“Transaction activity is fuelled by the continuing need of many European banks to reduce the size of their balance sheet and restructure their operations. Bank restructuring will continue over at least the next five years – with activity likely to be fuelled by the findings of the Eurozone wide Asset Quality Reviews (AQRs) and stress tests currently underway”
PwC estimates that banks across Europe are still holding loan assets of EUR 2.4 trln which they regard as non-core. Whilst a large number of banks are taking significant steps to reduce their exposures to these unwanted assets a continual reappraisal of their balance sheets is leading to the identification of additional orphan assets.
“Private equity and hedge funds were the most active buyers in 2013,” Constantinou added. “We expect that to continue in 2014 due to the significant amounts of investment funds raised and the availability of debt financing, especially for more established players in the sector. We are in contact with over 150 investment groups looking to invest in the European market. For 2014, we expect property-backed lending to remain the most active asset class.”