As per research conducted by the European Central Bank, the market for non-performing loans in the European market is doing brisk business and the same has been recorded extensively in countries like Spain and Italy that recorded the maximum number of deals in this sector.
The Good and the Bad but the ‘not-so-ugly’
As far as the total gross book value of non-performing loans are concerned, the amount recorded was €66billion in the last quarter of the year 2017. This figure recorded was the highest as compared to that figured in the year 2015 as per European Central Bank’s review report pertaining to semi-annual financial stability.
The rise in sales in the last quarter amounted the total volume of transaction to €157 billion an increase of about 42%yoy in 2017. Aside from Spain and Italy, the other countries that have witnessed a surge in the sale of NPLs include Cyprus and Greece.
However, it is also being noted that those markets that have remained active in this field for quite some time are gradually manifesting a decline in the sale of non-performing loans.
Statistically, the total number of non-performing loans in the books of the banks have shown significant decrease to less than 5% from 7.5%. as recorded end of 2017.
Experts believe perhaps this figure does not offer the accurate figures since at the same period the NPL ratio in Greece has been recorded to be higher than 40%. On the other hand, Germany has non-performing loans that is less than 2%.
More people in the UK believe that these bad or non-performing loans coupled with lower profitability margins have caused the maximum problem in the banking sector in the European markets.
Most noticeably, those markets or economies that have not performed very well in the last 10 to 12 years and this can be exemplified by Italy have shown this trend.
The Single Supervisory Mechanism, regarded as the watchdog of European Central Bank, is working in tandem with the various banks that have large volumes of NPLs by introducing norms wherein these banks that have large volumes of non-performing loans would furnish more collateral as security against the non-performing loans.
Generally speaking, the loans extended by banks in the Europe are regarded as non-performing when they have default payments that exceed 3 months or more. So that the same crisis is not repeated every year, the ECB has laid down few norms whereby, the banks will be required to make provision so that the losses that the banks incur due to non-performing loans are taken care of by these loan issuing banks. In fact, because of these guidelines/norms, banks would have to bear the excessive expenses for loans that become a burden for the banks.
Every step that has been taken by the ECB is to shed the number of NPLs portfolios of banks so that there are more number of investors that are attracted to various investment vehicles.
Interestingly, when attracting investors are concerned, it is being observed that the investors in United States that include private equity firms apart from investment banks have shown keen interest in settling scores for the non-performing loans in the European markets.
An important aspect thathas to be kept in mind is that the slow progress in shrinking of NPLs could also be attributed to a great extent to the legal system that exists in few countries in Europe like Italy, where it takes a lot of time to liquidate the collateral or any security that is attached to these non-performing loans.