GLOBAL - Debt investors are optimistic that banks will "strategically sell" at least some of the $100bn (€76.2bn) in property-related loans currently on their books in 2012, according to Ernst & Young's annual survey of investors in US non-performing loans (NPLs).
Up to now, despite near-constant forecasts of an imminent flood of loans onto the market, banks have sold only a small percentage of their NPLs as they waited for a market rebound.
However, pressure on banks to release the loans will come from at least a percentage of defaults on "billions of dollars" ($800bn-1trn) of commercial real estate loans due to mature over the next five years.
In his introduction to Ernst & Young's fourth annual NPL report, partner Christopher Seyfarth said: "[Investors] expect to continue to have opportunities to acquire NPLs from banks - particularly regional and smaller institutions that hold a relatively high percentage of NPLs on their books."
The long-awaited sale of bad debt will include both commercial real estate debt portfolios and individual NPLs as smaller, more exposed banks seek to mitigate their real estate loan exposure.
"In general," the report said, "the smaller the bank, the greater the exposure."
Loans on the books of the top 100 banks tend to be on large assets such as office towers and regional shopping centres in gateway cities.
The rest belong to regional community banks with smaller loans on their books, but which in aggregate constitute a significant percentage of the US commercial property loan market.
Banks outside the top 100 account for loans worth $750bn.
Increasing the pressure on banks to sell will be market uncertainty, with forecasts divided between levelling off of property values or continued growth in 2012.
Even if banks do not increase their sales, investors are likely to have more opportunities to acquire NPLs.
Despite the number of bank failures falling to 92 last year, compared with 157 the previous year, the Federal Deposit Insurance Corporation - which manages failed banks - will remain an active seller.
The report pointed out that around two-thirds of would-be debt investors managed to close deals last year, compared with fewer than 50% the previous year.
Among investors polled for the report, 72% said they had attempted to purchase NPL portfolios in the past 12 months. Nearly 62% have succeeded.
Of those who failed to secure NPL portfolios, 74% attributed the failure to having been outbid or unable to agree on a price.
