GLOBAL – Europe is emerging as a non-performing loan (NPLs) market in its own right, with Germany the country most of interest to investors, according to a report by Ernst & Young.
The consultancy said Europe was of interest due to its estimated €932bn in NPLs, equivalent to 7.6% of total banking loans this year, and noted that Germany and the UK were two areas of interest to investors.
According to its survey, 46% of respondents cited Germany as a market to focus on over the next 12 months, while 39% expressed an interest in the UK.
Daniel Mair, partner at the consultancy's German transaction advisory service, said investors were expecting there to be products "waiting in the wings" in both countries.
The report, 'Flocking to Europe', added that German banks had already begun shrinking their balance sheets to shore up capital requirements in light of Basel III restrictions.
"In the course of deleveraging, banks have so far held on to their NPLs until investor pricing is more in line with bank carrying values," he said.
"Most banks have set up internal restructuring units to work out or sell NPLs as well as dispose of non-core parts of their businesses.
"The gap between NPL bid and ask prices could narrow if the strength of German banks and property markets gives investors confidence to pay higher prices for NPL portfolios."
Ernst & Young added that Ireland was "showing signs of recovering" – reflected in 30% of respondents citing the country as a market to consider this year – while Spain was expected to see an increase in NPL activity, as the third most-popular country within the survey.
"While currently not attracting as much interest from NPL investors as other countries, Spain could become one of the most active NPL markets," the report added.
"With Spain's economy expected to remain in recession throughout 2013, it is likely that NPLs will continue to climb."
