Italy continues to be Europe’s most active market5 and disposals bucked the trend seen elsewhere in 2020 with NPLs decreasing year-on-year as their banks accounted for close to two-thirds of closed deals by the end of Q3 2020. The Greek market also continued to be active in the year and the two markets combined accounted for the vast majority of closed and live deals heading towards the end of the year.
Beyond those two jurisdictions, transactions in other markets have been sparse for the majority of the year but have now begun to pick-up with 2021 looking like a busy year. In the UK much of the proposed sale activity was put on hold when the pandemic hit but we have started to see sales pick up in Q4 with several of the key retail banks coming to market. The UK’s transaction pipeline for 2021 looms large given that UK bank’s had accounted for some of the largest increases in NPLs across Europe by the end of H1 2020, up 8.8% year-on-year6. In France, the largest NPL sale since 2015 completed although it had been in the pipeline for over a year. France has had the largest NPL level of any European country since the beginning of 2020 and there could be pressure from the ECB for sales to be conducted in 20217, adding to an already busy pipeline.
The Spanish market became extremely busy in Q4, particularly with SME loan portfolios, and Hoist participated in five sale processes during the period. Whilst NPL levels at Spanish banks have been falling now for several years, there was an increase between Q1 and Q2 of 2020 as the impact of the pandemic became apparent, although levels were still below those of a year earlier. Finally, both the German and Polish markets were quiet in Q2 but came back to life ahead of other European markets in Q3 with Hoist participating in several deals in each jurisdiction. The forbearance ratio for both countries rose year-on-year to H1 2020 suggesting an increase in payment holidays across the board but the ratio of NPLs actually declined over the same period (although there was a marginal increase between Q1 and Q2)8.
Looking more deeply at the asset class mix, real-estate backed transactions continue to dominate the market. This includes portfolios with a mix of secured and unsecured assets, with banks seeking to drive down their NPL ratios quickly via bloc sales rather than granular disposals. Unlikely-to-Pay (“UtP”) deals have continued to become more commonplace9 and make up an element of two of the top four deals in the market during the year. Deals in both the corporate and performing arenas have been less frequent during the year. The growing trend in the securitisation of assets has continued, accounting for over half of European transactions during the year and these have involved secured, unsecured and corporate claims.
Expanding into secured acquisitions within our existing markets is a key element of Hoist’s strategy since it will allow us to access much deeper pipelines whilst leveraging upon the people, infrastructure and relationships that we already have in these countries. Mixed portfolios are a particularly important part of this strategy, since they will often include unsecured assets for which Hoist Finance is highly competitive, but that historically we have not been able to acquire due to the barriers presented by the secured segments of the portfolios. By expanding our ability to acquire these new asset classes, we will also increase our ability to buy assets within Hoist Finance’s historic area of strength and expertise.