Europe Loan Disposals Seen at Record $110 Billion on ECB Review

Europe’s banks will dispose of a record 80 billion euros ($110 billion) of non-core loans this year as they trim balance sheets before central bank stress tests, according to PricewaterhouseCoopers LLP.

The sales come after lenders led by U.K. and Irish banks offloaded 64 billion euros of assets in 2013, with commercial real estate debt and unsecured retail loans the most actively-traded, PwC said in a report. More than 30 billion euros of holdings have been sold, or are close to a sale, this year.

A health check of European lenders by the region’s central bank is incentivizing financial firms to dispose of non-performing assets. They have 2.4 trillion euros of non-core debt holdings and PwC predicts bank restructuring will continue over at least the next five years.

“Transaction activity is fueled by the continuing need of many European banks to reduce the size of their balance sheets and restructure their operations,” said Richard Thompson, a partner at PwC in London. “We expect that 2014 will be another record year for the European non-core loan market.”

The European Central Bank is pressuring lenders to strengthen capital buffers before it assumes financial supervision duties for the 18-nation euro area in November. A three-stage review is being conducted into the health of the financial sector that will culminate in stress tests stimulating a range of crises later this year.

Private equity companies and hedge funds were the most active buyers of the loans in 2013 and will continue to be this year, according to PwC. Firms including Blackstone Group LP to Apollo Global Management LLC are competing for distressed assets in Europe, while hedge funds including Ellington Management Group LLC and GoldenTree Asset Management LP have hired staff to buy the debt.

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