French banks under pressure to deleverage NPLs
Prepared by Ajay Rawal, Partner, EY
- The NPL market came to a standstill in March but deal flow has restarted.
- Deal-flow does not include completed deals and therefore, it will be interesting to see what closes in Greece, Spain and Portugal before the end of the year.
- Unlevered IRRs have fallen to 6-7% with selling banks and investment banks providing high levels of leverage.
- Post COVID the bid/ask spread has widened with stability, performance data and provisions needed to facilitate market activity.
- Government stimulus lending is creating a new class of lending which may behave differently in terms of default rates.
- To date, performance is better than expected with more customers restarting payments.
- Starting to see a new shape as moratoriums and forbearance unwinds. Court processes are showing delays.
- NPL rates likely to grow substantially, with the ECB forecasting up to €1.4trn. Regional AMCs, a network of AMCs, a European data hub and greater use of trading platforms are possible solutions.
- Investors are being more selective with some focused on single-name credits.
- Hospitality and real estate continue to be of particular interest to investors.