The pressure on banks in Europe to get rid of bad property loans off their books has not eased amidst the worsening sovereign debt crisis that seemingly no-one was has the solution to. In fact they are under more pressure to sell before the impending regulation changes. The banks sold over 20 billion Euros in bad property loans last year, and are currently in the process of off-loading a further 13 billion Euros worth, according to a report CBRE will publish tomorrow.
According to the report the banks are selling off large portfolios with urgency, as the new regulations will increase the cost of holding loans against commercial property. Worryingly this is also leading to many banks slowing or stopping new lending on commercial property.
"Banks now recognise that, in many cases, loan sales are the most effective way of diminishing their balance sheet leverage and exposure to real estate," said Natale Giostra, head of CBRE’s UK and European debt advisory team.
Mr Giostra added that loan sales provided banks with a quicker solution than resolving the issues with each individual borrower.
According to the report most of the loan sales are taking place in the UK and Ireland, and the pair are also responsible for the majority of new loan sales mandates, which have increased threefold said CBRE.
Last year state-owned UK duo Lloyds and RBOS sold loans worth 2.3 billion Euros, while Irish bank AIB sold loans worth 1.4 billion Euros. Meanwhile Société Générale is not only selling bad loans, but halting all new lending on commercial property.
It is thought that UK banks will continue to lead the charge in selling off bad property loans in the near term.
Of the almost £300 billion estimated debt secured against UK commercial property, it is thought that most of the loans are already in trouble, and those that are at loan-to-value ratios that will make refinancing almost impossible in the current market. To make matters worse the Financial Services Authority, has ordered banks to improve their risk-assessment models, or switch to standardised methods, either option is likely to increase the cost of loans considerably.
All that said, it is not the first time we have had poor prognosis on the UK commercial property sector, yet, all the while, like the residential sector it has continued to bobble along the knife-edge.
- Wednesday 22 February 2012