France: Banks’ healthy balance sheets masking substantial NPL stock

Whilst Southern Europe’s distressed debt markets have taken a slight pause for breath in 2019, a surprising realisation has been the level of bad loans held by French banks.

Despite a lower-than-average NPL ratio of 2.6% (as of June 2019 according to EBA data), below Europe’s 3% average, French banking groups are currently holding more than €124 bn of NPLs, with more inflows expected ahead of a looming recession.

The past two years have seen a significant reduction in foreign exposures, and European regulators are now encouraging the banks to address their domestic loan portfolios, which are more or less split equally between mortgage/personal loans, loans to SMEs, and loans to corporates.

Following on from EOS’s €125m purchase from CIF, and Société Générale’s ongoing sale of €500m of secured/unsecured assets (Project Stone), international buyers are expected to turn their attention to France with an increase in the number and scale of transactions anticipated.

- Sources: Deloitte, EBA

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