MIPIM: European loan sale market hits €130bn in 2018 with €23bn of live sales underway

Italian and Spanish banks drive last year’s record haul in European loan portfolio sales, contributing €94bn of 2018’s total €129.5bn NPL sales, according to CBRE, who says as much as €23bn in 20 live European NPL sales will be sold during H1 2019.

In 2019, similar levels of activity are expected in Spain and Italy while CBRE predicts Portugal and Greece will be “a lot busier”.

The €129.5bn in 95 real estate-backed loan sales in 2018, reflected a 13.16% increase on 2017’s €114bn, according to CBRE, who said last year’s tally was the highest year recorded for European loan sales to date.

CBRE said European distressed loan portfolio investors have almost €100bn of ‘dry powder’ available to invest, held by US-based funds (89%) with the UK (7%) and other European Countries (4%) making up the remaining amount.

Key 2018 European NPL market themes identified by CBRE:

  • deleveraging via securitisation was increasingly seen as a viable alternative to traditional loan sales, led by Italy but followed by Greece, Ireland, Portugal and Spain;
  • increasing government pressure to deleverage in markets –such as Spain, Italy, Portugal and Greece – which will continue;
  • the advent of IFRS 9 and improved bank provisioning structures will drive greater single-name loans sales;
  • investor focus switched to Spain, Italy, Portugal and Greece in search of higher potential returns;
  • average loan portfolio size exceeded €1bn in 2018, and €1.4bn for CRE-only portfolios; and
  • 32 transactions were greater than €1bn and the average of this sub-pool was €3.27bn.

Anurag Shama, head of loan advisory, Capital Advisors at CBRE, explains:

“The jurisdictions which will drive loans sales during 2019 will be similar to the previous two years. Spanish, Italian, Greek and Portuguese banks have significant numbers of non-performing loans remaining on their balance sheets.

“CBRE are tracking 20 live transactions totalling €23bn that are expected to complete in H1 2019, these sales are, as expected, predominately based in the Southern European countries: Italy, Portugal, Spain and Greece. Although there will also be some activity in the UK and Ireland.

“We see the rationale for loan sales to continue in some respect by changes for IFRS 9 which is causing some banks to reconsider their provision methodology. Should this lead to a higher level of provisioning at the banks, the decision to consider a loan sale of a particular portfolio is more palatable compared to holding a loan or portfolio and working out internally. Specifically, IFRS 9 may lead to increased appetite of banks to consider selling single-name loans.

“Securitisation played a large role in 2018 and we expect this to continue in 2019 as lenders become more comfortable with the concept as a tried and tested alternative to direct loan sales.”

james.wallace@realassetmedia.com