European banks set to offload €80bn of loans this year

European banks are increasing the pace at which they offload non-core loans, with 2013's total 40% higher than 2012's and a further increase due this year, PwC says.

Across Europe, banks sold €64 billion of non-core loans last year, according to a report from PwC.  

The figure for 2013 represented a 40 percent increase on the previous year, driven largely by a rise in sales by banks in the UK and Ireland, Spain and Germany, PwC said.  

Private fund managers and hedge funds were the most active buyers of these assets last year, PwC observed. “We expect that to continue in 2014 due to the significant amounts of investment funds raised and the availability of debt financing, especially for more established players in the sector,” said PwC partner Richard Thompson. “We are in contact with over 150 investment groups looking to invest in the European market. For 2014, we expect property-backed lending to remain the most active asset class.” 

PwC predicts a further €80 billion in sales expected this year, and estimates loan portfolio sales closed (or in the process of closing) already this year total more than €30 billion.  

However, European banks are still sitting on an estimated €2.4 trillion of non-core loan assets, the report warns, suggesting there is still significant headway to be made by the region’s banking community. The ongoing reappraisal by banks of their balance sheets has led to the identification of additional orphan assets that have swelled the overall total, the report added.  

UK banks accounted for more than a third of the 2013 total, offloading €23.5 billion of non-core loans.  

Commercial real estate loans accounted for €18 billion of the total, the single highest proportion, with unsecured retail loans accounting for €15 billion.  

“Transaction activity is fuelled by the continuing need of many European banks to reduce the size of their balance sheet and restructure their operations,” Thompson said. “Bank restructuring will continue over at least the next five years – with activity likely to be fuelled by the findings of the Eurozone-wide Asset Quality Reviews (AQRs) and stress tests currently underway.”