Updated NPL Ratios and Developing an NPL Transaction Platform in Asia

In prior studies we projected the development of the ratio of non-performing loans to total loans (NPL Ratio) under different macroeconomic scenarios in many countries in the aftermath of the corona pandemic (NPLM 2020). More recently, we investigated the impact of high inflation on NPL Ratios after Russia’s invasion of the Ukraine and the resulting increase in energy prices and other consumer prices (NPLM 2022a). …

The impact of high inflation and energy prices on non-performing loans

We ask whether non-performing bank loans in Europe will rise because of high inflation and high energy prices and the fallout from the war in Ukraine.…

Valuation of Non-Performing Loans: Calibration of unsecured recovery curves

The statistical valuation of granular loan portfolios requires investors to determine the most suitable recovery curves. …

NPL update from 2021 EBA stress test

We analyse credit data from the EU-wide bank stress and the risk dashboard published by the European Banking Authority (EBA).…

Recent developments and disclosure challenges for EU securitisations

In this article we report on recent regulatory developments and focus on challenges in meeting the disclosure requirements for European securitisation transactions.…

NPL Portfolio Transactions - Data Requirements

We comment on recent developments regarding the data requirements for NPL transactions and the revised data templates published by EBA on May 4th.…

Towards an optimal bank balance sheet after Covid

We explain why challenger credit models are important to capture the impact of Covid on loan performance especially where champion models are not equipped to reflect the extensive government support measures.…

How auction methods can boost non-performing loan sales

In this article we describe how different auction formats are relevant for different types of NPL and how the NPL Markets platform provides the flexibility to use the different formats. …

10 lessons from the new European securitisation disclosure regime

We summarize our initial experience and highlight some pitfalls with preparing ESMA-compliant securitisation disclosures.…

Updated forecasts of NPL ratios after COVID-19

Our update on the development of non-performing loans after the economic contraction caused by COVID-19.…

Cash flow models for non-performing loan securitisations

Asset-backed securities (ABS) of non-performing loans (NPL) in Europe have been issued mostly in Italy thus far with a few deals in Portugal, Spain, Ireland and Greece. The current downturn caused by Covid-19 is expected to increase the volumes of NPL securitisation as an important tool for banks to transfer larger portfolios to investors to reduce NPL from their balance sheets. …

Impact of the Prudential Backstop on Bank's Balance Sheet

Whilst the COVID-19 pandemic is dominating all NPL related news, it’s easy to forget about impending new regulation concerning Non-Performing Loans (NPL). From 2021 new measures that set minimum capital coverage requirements for NPLs across Europe will come into place. Known as the Prudential Backstop, these regulations are designed to incentivise banks to remove NPLs sitting on their balance sheets.…

Forecasting NPL Ratios after COVID-19

The COVID-19 pandemic has caused a sudden slump in economic activity across most countries. The first quarter of 2020 saw the steepest decline in economic output for decades. The IMF published their forecast for the depth of the expected recession and its predicted recovery in 2021. The forecasts are uncertain and several other economists predict even steeper declines than the IMF. We forecast the ratio of non-performing bank loans (NPL) to total loans by country for the macroeconomic scenarios described by the IMF. We compare the predicted NPL ratio with those observed in the last recession and aim to identify those countries with the most severe impact. …

How to value bank loans in a crisis

The volume of legacy NPL is still elevated in many of the European countries which are now severely hit by the coronavirus pandemic. The longer the widespread lockdown of the economies continues, the more likely the economic shock will turn into another financial crisis with an increase in non-performing loans (NPL). Understanding the value of bank loans and NPL becomes a critical step when governments and supervisors must decide about how best to support banks to avoid a financial crisis and which institutions to bail-out. We discuss the different ways of valuing loans in the current crisis with a particular focus on NPL. We explain the different valuation methods with a focus on the valuations used in a bank resolution. We distinguish accounting from economic values for hold or sell strategies, respectively. We explain the significant data requirements imposed on banks by supervisors and analyse the data template for the valuation in resolution published by the European Banking Authority on March 10th.…

Heterogeneity matters: the benefits of loan-level investor reports for NPL transactions

Larger NPL portfolios, whether sold outright or securitised, are typically heterogeneous in terms of default vintage, borrower type, collateral type and legal processes. Investors monitoring the performance of these NPL portfolios can benefit from granular performance reports which fully reflect the heterogeneity of the pool. Standardized reports at loan level are expected to become more readily available during the course of this year, benefitting from the ESMA disclosure regime for European securitisation transactions and the data template for NPL transactions published by the EBA.…

The No Data Option in Securitisation Disclosures

Can asset-backed securities with missing data be compliant with securitisation regulation? …

The importance of collecting historical recovery data for NPL transactions

The year 2020 will see important changes in the use and disclosure of detailed recovery cash flow data for non-performing loans (NPL). On 20 December 2019, the European Securities and Markets Authority (ESMA) published revised technical disclosure standards for the reporting of securitisation transactions in Europe. For the securitisation of NPL, ESMA requires loan by loan reports on the underlying exposures according to the relevant template (for example, the template for residential mortgages or corporate loans) plus add-on data fields for non-performing exposures including details of historical repayments and unpaid balances. Banks or entities who have issued or sponsored NPL ABS in 2019 or are planning to do so going forward must comply with securitisation regulation and the technical reporting standards of ESMA which are expected to come into force by March 2020. Meeting the reporting requirements and detailed loan-level disclosures with historical collection information will be challenging. …

Best Practice Guide on Portfolio Data Requirements

This best practice guide explains the data format and minimum data requirements of the NPL Markets platform to sell portfolios of illiquid loans. …

Technical Paper: Regulatory demands benefit market for non-performing loans

This is a snapshot of the first of two technical documents providing details for the valuation of illiquid loans in workout. This article defines non-performing loans (NPL) from a legal, regulatory and accounting view and distinguishes NPL from other under-performing loans, such as loans categorized in Stage 2 of the IFRS 9 loan loss provision framework and loans subject to distressed restructuring or forbearance measures. …