Granular portfolios with many connections, each with lower individual value, were less popular at 33%. In principle, this could present a potential problem going forward as granular portfolios now dominate some of the more mature European NPL markets such as Ireland and the UK. The Italian market is still providing a good supply of large commercial real estate secured portfolios while the active Spanish market is arguably at the point of becoming more granular as most commercial real estate-backed portfolios are resolved. Generally, the Greek and Cypriot lending markets, where NPL activity is now taking off, consists mostly of lower “value-per-connection” assets.
Granular loan books generally lend themselves better to securitisation and hence their prevalence is another broad reason for securitisation transactions being on the rise in markets generally. Looking at these trends as a whole, investors seeking less granular, higher-value connection portfolios may find the landscape becoming increasingly challenging in Europe going forward because of the declining number of such portfolios coming to market.
The popularity of joint venture arrangements seems surprisingly high at 39% given that, while there are some examples completed in the European market, these have been relatively few in number and volume.
Given the increasing maturity of the European markets and the increasing challenges of finding attractive asset classes and portfolio compositions, we were interested to understand how the investor community currently views opportunities in the existing active European markets.
Europe continues to house significant stockpiles of NPLs. Market activity remains focussed on the Southern European jurisdictions of Italy, Greece and Spain where the greatest stock volumes and ratios reside. Significant further NPL resolution activity is therefore expected in Europe and each jurisdiction will continue to progress at its own pace.
It is unsurprising that 43% and 33% of investors have already invested in Italy and Spain, respectively, in the last two years and that 51% and 45%, respectively, are likely to invest in those two jurisdictions going forward. The data also shows a correlation for continued investment appetite in each of Portugal and Cyprus going forward, albeit in smaller volumes.
Ongoing deals currently monitored by Debtwire
Italys NPL burden is by far the largest in Southern Europe, eclipsing that of both Spain and Greece. However, at approximately 12%, Italys NPL ratio is a fraction of Greeces, which stands at 45%.
The results for Greece provide some interesting insight: 39% of investors report that they have already invested in Greece which is a higher percentage than most would likely anticipate given that the Greek market remains in its formative stages.
This figure may be indicative of investors having acquired assets in Greece under single-name transactions or other smaller private transactions. Nonetheless, appetite in Greece clearly remains high, with 46% of investors stating that they are at least moderately likely to invest there in the next two years. This is despite the question mark over IRRs in Greece (see Greece: Has its time come at last? below).
Italy: Opportunities abound
Italy is currently the largest NPL market in Europe, with 64 deals undertaken with a total gross book value of €103.6bn in 2018.
The Italian Governments GACS scheme, pursuant to which the Italian Government provides a guarantee of the senior note receivables of a securitisation, has contributed notably to an increase in Italian NPL disposals over the last two years . A further six-month extension of the scheme, to , has given extra time to banks to avail themselves of this incentive. At the end of , the nine live deals being monitored by Debtwire had a combined value of €12bn.