The German NPL market

The sale and outsourcing of non-performing loans are well established instruments for German banks and their NPL portfolios. For more than a decade now, transactions of secured as well as unsecured claims have taken place in Germany.

German banks became first serious about cleaning up their balance sheets in 2003 after the global economic downturn which had resulted in part from the collapse of the IT bubble and that was followed by the crash of the Eastern German housing market.[1] This led to an increase in mortgage NPLs.

The years 2003 to 2007 were “boom years” for the performing and non-performing loan market in Germany as more than 65 transactions with an aggregate value of at least €45 billion took place. The majority of investors during that time were private investors as well as investment banks from all around the world.

The financial crisis in 2008 caught investors and banks off guard and as a result almost no loan portfolio transactions occurred during that time. However, as a result of the global credit crisis the volume of non-performing loans on balance sheets rose dramatically. Additionally, banks started focusing on their core business segments – identifying non-core assets that needed to be resolved, fuelling an active market for loan portfolios.

Since then the German NPL market remained stable with transaction volumes between €15 and €25 billion per year. The biggest transactions in 2015 were three-digit sales from Commerzbank, Land Banks, real-estate credit banks and from the German bad banks EAA and FMS-WM.

The deal volumes, however, seem to be still too low in Germany compared to the market volume of non-performing loans. And this even though there is enough evidence for an attractive level of prices from the vendors’ perspective. Many investors with large capital stock sizes would like to invest in NPLs.

The majority of the members of BKS are also buyers of non-performing claims. Their experience and quality standards have made them long-lasting partners of leading banking institutions in Germany.

[1] Nora von Obstfelder, D. M. (2014). Performing and non-performing loan market overview. In J. W. Simon Gottlieb Grieser, Performing and non-performing loan transactions across the world. A practical guide (S. 3-15), London.