Sales of bad debt top €100bn in 2016 as Europe's banks try to put crisis behind them

Jasper Jolly
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Unicredit was the biggest seller of non-performing loans in Europe last year (Source: Getty)

European loan sales broke through the €100bn (£85bn) mark in 2016 as struggling banks look to offload big books of bad debt.

Italian loan sales more than doubled year-on-year to comprise €36bn (£30bn), almost a third of the total European sales, according to analysis by Deloitte.

Italy’s Unicredit was the biggest seller, followed by the Irish “bad bank” Nama (National Asset Management Agency).

Read more: Italian parliament signs off on €20bn bank bailout fund

The UK banking sector saw sales reduce by two-thirds to €13bn (£11bn), reflecting relatively earlier moves to resolve vulnerabilities on banks’ balance sheets.

Loan sale deals by country in 2016

The sales of non-performing loans (NPLs) and non-core assets form part of efforts by banks to put the global financial crisis behind them. During the crisis default rates soared as debtors struggled to service loans. Loans are deemed to be non-performing if they have not been serviced for 90 days or more.

The stock of NPLs is seen as a major threat to the European banking sector by the European Central Bank (ECB). The “resolution of non-performing loans in the banking sector” is a “prerequisite” for further credit growth, according to the latest minutes from interest rate policymakers at the ECB.

Read more: Big five banks run up £100bn bill in bad loans and legal costs

David Edmonds, global head of portfolio lead advisory services at Deloitte, predicts continued growth in loan sales in the face of continued high demand.

He said: “I believe European loan sales could surpass €200 billion this year. The ECB is sending very clear signals to the banking sector that it’s time to deal with the ‘hangover’ of NPLs left over from the last financial crisis and start focusing on future lending.”

The loan books have been bought at knock-down rates by other banks and fund managers. Fortress Investment Group was the biggest buyer, according to Deloitte. The American investors recently bought a €17.7bn tranche of loans from Italy’s Unicredit.

Private equity firm Cerberus was the second biggest buyer, followed by Lloyds Banking Group.

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