Market dynamics

NPL market dynamics are changing, perhaps for good

It is possible that the coming year will see banks come under even greater pressure to carry out increased disposals, particularly as state-backed programs in Italy and Greece continue to provide support in the process. .

In our previous report, we highlighted a poll in which 70% of respondents expected to see an increase in NPL sales in Europe in 2021. The majority view would prove correct, but making predictions for 2022 and beyond. beyond seems strewn with pitfalls. difficulties.

On the one hand, many European banks still hold large stocks of NPLs, particularly in hotspots such as Spain and Italy, but also in France, the UK and Ireland. Additionally, as the impact of COVID-19 continues to dissipate and the economic fallout from events in Ukraine grows, not to mention the potential for a recession on the horizon, it is possible that more loans will slip into non-performing territory. .

It is possible that the coming year will see banks come under even greater pressure to carry out increased disposals, particularly as state-backed programs in Italy and Greece continue to provide support in the process. .

The counter-argument is that when it comes to old NPLs that banks have had to cut in recent years, much of the heavy lifting has already been done. What remains is relatively modest in comparison. In 2015, for example, the EBA said that the average bank in the European Union had an NPL ratio of 6.2%. Today, that figure has fallen to 2%.

In other words, even if the current market volatility leads to a significant increase in NPL volumes, the need for large-scale disposals remains small, at least for the foreseeable future.

That’s not to say it’s a market that lacks opportunity, just that the dynamics at play are changing. New entrants, including service agents with expertise and experience grounded in supporting investors, will introduce more competition, both for small divestments by banks and in the secondary market. Indeed, this secondary market is flourishing.

Likewise, the growing sophistication of data and analytics technologies allows buyers and sellers to pursue opportunities with greater clarity on price discovery and potential return. The regulatory landscape is also changing, as we move towards the end of state support schemes.

The bottom line is that while the future direction of the NPL market is not set in stone, there are clear trends emerging. Both existing players and new entrants are beginning to position themselves accordingly.

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