Consultant Zone

NPL trades are not dead

Some commentators have suggested that 2020 will be a quiet year for portfolio trades, on the basis that any holder of an asset who might have been minded to dispose of part or all of a portfolio would have done so by now, particularly if it is in the NPL category. 

We do not share this opinion, especially in respect of NPLs, and from the number of enquiries we have already received in 2020 for portfolio due diligence and ‘agreed upon procedures’ reviews, it seems that investors still have a healthy appetite for further acquisitions.

We believe the market signs warrant a positive outlook for such trades as both sides in these transactions are looking to continue their respective strategies.  Holders of NPL portfolios throughout Europe continue to come under pressure from Central Banks to resolve the structural issues within their balance sheets.  Current lending trends creeping up the credit curve together with a layering of risk and competition led margin reductions (coupled with a low interest rate environment) has resulted in profitability challenges.  Central bankers are quick to point out that the problems of the banking crisis have not yet been solved and that we must avoid complacency, as the macroeconomic outlook through Europe is deteriorating.

We strongly believe that the disposal of NPL portfolios will continue to drive trades in 2020.  Our view is shared within the European Central Bank (ECB).  At a recent forum in Milan, the Chair of the ECB Supervisory Board suggested banks “should pull the levers under their control” especially:

  1. “fast restructuring/disposal of NPLs
  2. cost efficiency improvements
  3. business model viability/strategic steering reviews
  4. further investment in technology/digitalisation”

We think that it is telling that the first lever focused on was the ongoing trading of NPLs.  Portfolio trades are clearly not dead – 2020 could be one of the busiest years yet.

Whether a seller or buyer, give us a call to discuss our assessment or see how we can help.