SmithNovak’s NPL Europe 2023: key takeaways from London conference
SmithNovak hosted market participants over two days at its annual European non-performing loan (NPL) conference to discuss the state of the market, macro and financial events.
The thought-provoking NPL Europe conference was held at Pullman London St Pancras over the 30-31 March. The Debitos team was fully represented with Timur Peters, Ulrich Sprenzel and Ioannis Sakarelis all appearing on separate panel discussions.
In this article, we will summarise our high-level thematic takeaways without referencing companies or individuals to adhere to confidentiality conventions.
Six months of market turbulence.
Strong macroeconomic headwinds have provoked challenging conditions for a number of industries which have influenced the outlook for NPLs.
After the collapse of three US regional banks within one week in mid-March, the deposit flight contagion risk which precipitated the forced rescue of Credit Suisse by UBS, stability and calm has returned to euro area banking sector.
Europe is in a very different place than the US.
Regulations in the EU are much tighter in the euro area smaller banks, with similar bank management failures to supervisory lapses much less likely. However, second-order effects form the UBS-CS shotgun marriage may exacerbate already tightened lending criteria for new loans and refinancing.
In the US, distress in the CMBS sector is weighing on office markets. A consistent increase of stage two loans – those in-between performing and non-performing over the course of the year.
No one expects a huge fresh NPL wave across the euro area.
Although a little insecurity remains, more likely is a gradual build-up of new vintage NPLs over the course of the year. Pace of loan sales could accelerate by the later stages of 2023. A concentration in NPL activity is expected to come from banks in Italy, Spain, Greece and Portugal in the second half of 2023. Deals will likely be smaller, more bespoke and thematic. Some bilateral deals could also emerge, as well as some smaller NPL activity is from Germany and the UK over the next six months.
Market anxieties are very different to the irresponsible lending practices prior to 2008 crisis.
They reflect uncertainties over hidden leverage in the system which has yet to come to the surface, due 15 years of ultra-low interest rates, and the accumulative impact of higher-for-longer interest rates, inflation and tight labour markets on euro area economies.
Investors and lenders remain vigilant for the possibility of further surprises.
Many suspect more market turbulence ahead. Higher borrowing costs will eventually weigh on investors ability to service debt in an environment of high inflation and weakening growth momentum. Higher debt costs will also effect performance of existing NPL and unlikely-to-pay (UtP) deals, which may affect prices and forward demand.
Real estate NPL investors are changing.
Market consists of fewer opportunistic funds, and a higher proportion of more patient capital, such as large family offices, which are interested in much longer business plans. Real estate investment markets have been quiet so far in 2023, but will pick up towards the end of the year
Technology solutions and digitalization are increasingly embraced.
Technology is adopted across deal preparation, marketing, due diligence, bidding and in post-deal closure servicing and business plan execution.