British banks outpace Euro rivals in rush to sell off unwanted loans

The institutions are able to sell off assets rapidly because buyers, such as US investment groups, are keen to grab a slice of the British market and see the loans as a good way to cash in on the UK’s relatively strong economic recovery, according to PwC.

By contrast banks in Germany and Italy are only expected to sell loans worth €20bn-€25bn each.

Portfolio sales picked up in the wake of the financial crisis as banks sought to get rid of bad loans on their books and slim down to a healthier structure.

As reported by The Telegraph, the process has proven to be enormously time consuming, and the more work banks have done in studying their assets, the more they have found that they want to sell off.

As Britain’s economic recovery takes shape, investors are willing to pay increasingly high prices for loan books in the UK – prompting banks to accelerate their plans to sell their portfolios.

Recent examples include Lloyds Banking Group’s sale of a portfolio of £2.6bn of unprofitable Irish commercial loans to a group of investors; Royal Bank of Scotland’s sale of a portfolio of $5.6bn of loan commitments in North America to Japanese bank Mizuho; and the UK Government’s sale of £2.7bn of mortgages from the so-called bad bank remains of Northern Rock, to a group of investors led by JP Morgan.

Another factor is that British banks have restructured their businesses more quickly than their European rivals, typically cutting back on areas such as commercial real estate and focusing on UK retail and business customers. European banks have further to go in reshaping their balance sheets.

PwC estimates that there are still roughly €2 trillion of assets that need to be sold or run down on European banks’ balance sheets.

“The UK started restructuring quite a long time ago, and now we’re seeing a renewed push to get things over and done with – they are quite near the end of the process,” said PwC’s Richard Thompson.

“Some European countries still have a way to go. We have seen the most activity in the UK, Ireland and Spain. We talk about the Italian market being about to take off, but some European markets are further back in the cycle. The French banks have not been very active, for example.”

Those continental European banks have also been slow to start selling non-core loans as they have only recently been pushed to do so by regulators. Stress tests in 2014 saw greater official scrutiny of their balance sheets, forcing banks to take a closer look at their books and decide what to sell.