Chinese and Indian banks now hold the highest level of bad loans on their balance sheets, a Debtwire analysis shows.

While European non-performing loans volumes have decreased in the past few years, they are going up in Asia. The market is expecting sales activity to move more to emerging markets in the coming year, a topic which will be discussed on 16 October on a panel focused on global NPLs at the DebtwireWeek conference in London. 

India has taken over from Italy as the world's second-largest holder of NPLs. At the end of 2017, Italy had a total of EUR 186.7bn NPLs (USD 224bn equivalent) on its banks' balance sheets. The volume dropped to EUR 134.7bn (USD 155bn) at the endof 2018, after a record year of sales. The pace of sales, albeit slower, has remained strong in 2019.

India, on the other hand, has seen the volume growing to USD 159bn as of December 2018 from USD 150.2bn at the end of March 2018, making it the second largest holder of NPLs in the world.

And while the Italian NPL ratio has dropped to 8.3% in 2018, from 11.1% in 2017, the Indian NPL ratio increased to 11.2% in 2018 from 9.3% in 2017.

Still,activity is relatively slow, with a total volume of USD 2.33bn equivalent in 30 deals mainly focusing on corporate loans so far this year, according to data from Debtwire Asia-Pacific.

Brazil is also among the top potential markets for corporate loan sales but the data is scattered. In a September 2018 report Prime Yield Global estimated a current total volume of Brazilian NPLs between BRL 550bn-BRL 650bn (USD 141.7bn-USD 167.5bn). At the lower end of this range, Brazil would rank fifth worldwide after France, but the top estimate would place the market ahead of India, in second place.

The estimate is up from BRL 450bn-BRL 500bn (USD 142bn-USD 157bn) in a report published the previous year. Prime Yield estimated 2018 transaction volume at BRL 36bn-BRL 50bn (USD 11.3bn- USD 15.7bn).

With USD 296bn of NPLs held in their balance sheets, Chinese banks have the highest amount of NPLs globally. But with a declared NPL ratio of 1.89% the pace of sales hasn’t accelerated yet, especially to foreign buyers.

Also in France, the NPL ratio is relatively low at 2.8%, but with an NPL volume of EUR 125.7bn (USD 144bn) in 2018, it could soon become the highest in Europe prompting investors to see some activity to in the market.

In the US, NPLs have been mainly addressed in the years following the financial crisis. At the beginning of 2010, NPLs totalled USD 374.7bn,according to the Federal Financial Institutions Examination Council. Between 2009 and mid-2014 there were over 900 portfolio transactions for a volume of USD 188bn according to Deloitte. The NPLs volume was USD 89bn and the NPL ratio 1.56% as December 2018.

by Alessia Pirolo and Amy Finch

Alessia Pirolo Head of NPL Coverage Debtwire

Alessia Pirolo is Head of NPL Coverage at Debtwire ABS. From a previous focus on Southern European Commercial Real Estate, she is now in charge to expand Debtwire's NPL coverage areas around the world. Before joining Debtwire, she covered U.S. and European commercial real estate for The Wall Street Journal, and the Commercial Observer. She holds a master’s degree from the Columbia University Graduate School of Journalism.