What’s Next for Non-Performing Loans After COVID-19?
In the decade-plus since the 2008 recession, the non-performing loans (NPLs) industry matured in many parts of the world, with loan sales and securitizations becoming commonplace for banks and a broadening pool of investors partaking in NPL transactions. But just as the NPL market hit its stride, a global pandemic threatens to disrupt the balance. How can issuers and banks navigate the post-COVID-19 NPL landscape?
5 June 2020
Before COVID-19, much of the stock of NPLs grew out of the 2008 financial crisis, particularly in Europe. At its peak, the pool of NPLs in Europe reached EUR 1.2 trillion. That number recently dropped to half – EUR 600 billion, according to the European Banking Authority – perhaps a positive sign that banks have finally made good progress in incorporating NPL and debt sales in their overall credit and risk strategy.
In March, a global pandemic wreaked havoc on populations and financial markets. As a result, banks and lenders now face an unprecedented, widespread proliferation of loan defaults across the globe and numerous industries. This could present opportunities for investors seeking yield as the crowded field of risk-averse investors further depresses returns from safe haven vehicles, but they may be ill-equipped to sort through a market saturated with distressed assets.
Early regional forecasts on the rise of non-performing assets post-COVID-19 are substantial:
- Asia Pacific: + USD 600 billion
- China: + USD 471 billion
- Japan: + USD 39 billion
- India: + USD 25 billion
- Korea: + USD 18 billion
- Australia: + USD 14 billion
- Singapore: + USD 9 billion
- Spain: + Euro 100 billion
Those sizable projections suggest a sizeable supply of NPLs for years to come, and both sellers and investors will have a tough time navigating the market. Banks, sellers and issuers face a particularly daunting process — from deal origination through marketing, due diligence and post-sale activities.
Read our just-released white paper, What To Expect from Non-Performing Loans (NPLs) Post-Crisis, for insight on NPLs post-COVID-19. We look back at trends coming out of the 2008 financial crisis to help inform the outlook; explore the new challenges in executing transactions; and offer best practices around investor outreach, due diligence and securing sensitive, personally identifiable information (PII).
Patricia is director of product marketing for banking and securities at Intralinks, responsible for content and go-to-market strategy for the debt capital markets business. Prior to joining Intralinks in 2019, Patricia held senior product marketing and communications roles at global financial services firms including Envestnet, IHS Markit, and Morgan Stanley.