New regulations forcing French banks to step up bad loan sales: Deloitte

Published: October 21, 2019 11:34:48 | Updated: October 23, 2019 10:47:37

FILE PHOTO: A BNP Paribas logo is seen outside a bank office in Paris, France, August 6, 2018. REUTERS/Regis Duvignau/File Photo

New regulations are forcing French banks to step up sales of bad loans even though their balance sheets are healthier than rivals in southern Europe, a study by Deloitte showed on Monday.

European financial regulators are putting pressure on banks to tackle their bad loans in a set of new guidelines that would accelerate disposals of non-performing loans or NPLs.

“Holding the second largest NPL stock in Europe, French banks are starting to feel the pressure irrespective of the health of their balance sheets,” the study said.

French banks had a stock of around 124 billion euros ($138.16 billion) of NPLs at the end of June, while 70 billion euros of bad loans were tied to assets in their home market at end-2018, Deloitte said.

New rules could eventually raise the amount of capital needed to back up bad loans, even though French banks’ stocks of bad loans are lower than the European average as a percentage of their total loan portfolios, Reuters reported.

The NPL ratio for French banks stood at 2.6 per cent end-June 2019 on average, versus 3 per cent for Europe, European Banking Authority data showed.

While French banks reduced their exposure to bad loans over the past two years, the drop in NPLs was driven by selling portfolios of loans in other European markets, rather than at home.

BNP Paribas BNPP.PA was the most exposed to credit risk with 34 billion euros of NPLs held in France and abroad, equal to a 4.3 per cent NPL ratio at end-Dec, the Deloitte study said. Meanwhile, state-backed La Banque Postale had the lowest level with NPLs of just 1 billion euros, or a 1.5 per cent ratio.

Deloitte said French banks launched sizeable portfolio sales earlier this year, adding that 47 billion of euros could be sold over 2020-2024.

The French credit management market is getting more attention from international private equity funds that invest in distressed assets and who have been so far active in Italy, Spain or Greece, where bad loans are much higher.

“There is some appetite from investors to diversify and to move to markets like France,” Deloitte partner Hrisa Nacea said.

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