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Deloitte: 2016, a record year for NPLs 

With closed transactions of 3.5 billion EUR during 2015 and 2016, Romania has been the champion of the Central European region at non-performing loan (NPL) sales portfolios, according to Deloitte’s annual NPL Study.

The CEE region has experienced an increased interest of NPL investors and a higher bank activity due to improvement of economic conditions, coupled with an increase in provisioning following the AQR exercises in several of the CEE countries. The largest number of completed deal volumes took place in Romania (37%), followed by Hungary (24%), Poland (11%) and Slovenia (9%).

In 2016, NPL investors in certain countries in CEE showed a growing interest for retail mortgage portfolios and the trend is expected to continue in 2017. Transacted corporate portfolios in CEE amounted to 4.8 billion EUR during 2015 - 2016, whereas both residential portfolios and consumer loans amounted to 1.6 billion EUR.

“In 2017 the Romanian banks aim to reduce the level of non-performing loans from 10% at the end of 2016. They will aim to reduce the gap between current level and the European NPL average ratio of about 5%. In this context, I expect to see four or five NPLs transactions this year, each worth hundreds of millions EUR in nominal value,” said Radu Dumitrescu, Partner Deloitte Romania and responsible for Mergers & Acquisitions Transaction and Reorganization Services within the Financial Advisory department.

“Corporate and retail mortgage NPLs will still be the “stars” of the transactions in CEE. We expect the market to continue its upward trend of retail mortgage NPL transactions that began in 2016.”

The macroeconomic environment remained supportive to the upturn of NPL markets in the region: GDP increased in all twelve analyzed countries, with an indirect positive impact on the loan repayment abilities of both retail and corporate debtors. The real estate markets also improved and Deloitte expects the positive tendency to continue in the coming period, while in the regulatory area there is a tendency to remove the obstacles in the selling process of NPLs, the latest directive of the European Central Bank stipulating comprehensive reporting in case of banks bearing with high volumes of non-performing loans in their balance sheets. 

Key findings of the NPL Study 2017:

  • Sale of non-performing loan portfolios further increased in 2016 compared to 2014 and 2015 due to the increasing interest of NPL investors in the CEE region and the greater willingness of banks to dispose of portfolios
  • Although investors turned their interest towards retail mortgages as well, servicing capacity is still a concern for many investors
  • Based on our expectations for 2017, NPL transaction activity will level off or possibly further increase as NPL investors become more comfortable with the region
  • The role of restructuring is likely to grow in the forthcoming years, which will help further NPL reductions
  • The NPL ratios in the region will be impacted by whether forborne loans can stay healthy on a long-term basis or whether they enter default again

Deloitte performed deleveraging and banking loan portfolio transactions in the value of more than 400 billion EUR globally, both on the sell and buy side. In the past three years, Deloitte assisted clients related to more than 5 billion EUR assets in the CEE region. 

The fifth edition of Deloitte NPL study examines the NPL markets in twelve countries: Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Serbia, Slovakia and Slovenia.