A resilient industry
When the pandemic hit Europe with full force during the first quarter of 2020, many feared that the debt collection and debt purchasing industry would struggle. During 2020, the reported performance of the industry players to a large extent exceeded expectations.
Especially the Northern parts of Europe showed resilience, with performance close to pre-Covid forecasts. 2020 was a year with very low transaction activity, due to a combination of the unwillingness of banks to sell non-performing loans at large discounts and the industry players showing discipline and cautiousness.
2020 was a quiet year in terms of non-performing loan transactions, as a result of the Covid-19 pandemic. NPL transactions was at its lowest level since 2015. In terms of volume more than 50 % of all NPL transactions were carried out in Italy in terms of gross book value (GBV). Greece was the second largest country in terms of volume, and Spain was the third largest. According to Debtwire the total volume of NPLs sold in Europe was close to EUR 70 billion in GBV, and Italy, Greece and Spain represented more than 80 % of the transaction volume.
The trend of less price pressure on non-performing loan portfolios observed in 2019, continued into 2020. As a result, IRR levels have continued to develop positively. As a result of the pandemic, transaction activity for B2Holding has been significantly lower than the previous year. With an increase in loan loss provisions for European banks during the pandemic, NPL volumes have increased in 2020 and are expected to increase going forward when government schemes end. The industry players have all been cautious and preserving capital in 2020, preparing for a market with increasing NPL volumes being sold.
Transactions in the industry
Despite the Covid-19 crisis, there were still some notable transactions carried out. In Greece, the largest NPL securitisation to date was closed in June 2020, where Eurobank restructured non-performing loans with a GBV of EUR 7.5 billion. In parallel, doValue acquired 80 % of the shares of Eurobank’s captive servicer FPS and acquired a majority of the junior notes in the securitization structure. Another notable transaction was the successful refinancing of Lowell in August 2020. The Lowell refinancing was an encouraging sign that there is increasing investor demand for bond issues in the debt purchasing industry.
In 2020, several regulatory initiatives were carried out as a response to the pandemic. However, many of them are of a temporary nature such as payment moratoriums in Spain and Italy. In December 2020, the European Commission presented an action plan as a response to the Covid-19 crisis, in order to prevent a future build-up of non-performing loans across the European Union. The four main goals of the strategy are:
- to further develop secondary markets for distressed assets,
- to reform the EU’s corporate insolvency and debt recovery legislation,
- to support the establishment and cooperation of national asset management companies (AMCs) at EU level, and
- to implement precautionary public support measures, where needed, to ensure the continued funding of the real economy under the EU’s Bank Recovery and Resolution Directive and State aid frameworks.
Gross ERC incl. the Group’s share of portfolios in JVs (NOK million)
South Eastern Europe
Gross collections (NOK million)
South Eastern Europe
Industry abbreviations and definitions
|Cash EBITDA||EBIT added back depreciation and amortisation of tangible and intangible assets, amortisation and revaluation of purchased loan portfolios, profit from shares in associated parties/joint ventures and participation loan/notes and cost of collateral assets sold. Adjusted for repossession of collateral assets and cash received from shares in associated parties/joint ventures and participation loan/notes. Cash EBITDA is a measure of actual performance from the collection business (cash business) and other business areas.|
|Cost to collect||Cost to collect is all external and internal operating costs related to the Group’s collection business.|
|EBITDA||Operating profit before depreciation and amortisation (EBITDA) consists of operating profit (EBIT) adding back depreciation and amortisation of tangible and intangible assets.|
|Forward flow agreement||Forward flow agreements are agreements where the Group agrees with the portfolio provider that it will, over some period in fixed intervals, transfer its non-performing loans of a certain characteristics to the Group.|
|ERC||The gross collection in nominal values expected to be collected in the future from the purchased loan portfolios owned at the reporting date and the Group’s share of gross collection on portfolios purchased and held in joint ventures.|
|FTEs||Employees measured in "Full-time equivalents"|
|Face value||Unpaid principal balance plus interest and fees|
|Gross collection||Gross collection is the actual cash collected and assets recovered from purchased portfolios before costs related to collect the cash received.|
|Net IRR||The expected net return before tax on a portfolio investment based on gross expected cash flow less cost to collect.|
|NPL||Non-performing loan. A loan will be defined as non-performing when a certain time (usually set to 90 days) has passed without the borrower paying the agreed instalments or interest.|
|Profit margin||Operating profit expressed as a percentage of total operating revenues.|
|Single ticket||A large individual claim, usually secured|