Opportunities Related To European Non-Performing Loans

The outstanding amount of non-performing loans (NPLs) held by EU banks is estimated to be just over €1 trillion, or approximately $1.2 trillion.

These NPLs, which are loans in default for at least 90 days, are emerging as a key issue for European banks. With banking authorities pushing for disposal of NPLs, many EU banks are now looking to reduce their exposure while investors, including U.S. hedge funds (which are not subject to U.S. or EU prudential regulations), are eyeing opportunities for European NPL investments.

Regulatory Pressure on NPLs Disposal

Three considerations should boost NPLs sales by EU banks in the near future:

• European banking authorities are increasing their pressure on EU banks to reduce their exposure to NPLs. After an EBA study on 160 European banks completed in July 2016, the ECB published its final guidance to banks of NPLs on March 20, 2017. This guidance mandates banks with high NPL exposure to establish realistic, time-bound