A quick guide to understanding credit reports

Julian Winfield, UK chief executive of financial services provider Hoist Finance, explores the European market for non-performing loans (NPLs) and its growth prospects for 2020.

Non-performing loans are an essential part of the lending business, and the likelihood of non-repayment is an inherent risk. Risk of loss is part of the credit rating banks assign to borrowers and is, therefore, included in the cost of borrowing. Loan losses and NPLs generally encompass non-performing loans, insolvency proceedings and debts where customers’ payments fail to meet the contractual terms.

The probability that a loan will be repaid in full is substantially lower once the loan has been classified as non-performing. As a result, debt purchasing organisations, such as Hoist Finance, can acquire NPL portfolios at a significant discount to the loans’ nominal total value.

Perhaps not surprisingly, the banks themselves (i.e. the ‘sellers’) often have a different view of the value of their loans, which has hampered NPL divestments. Slow procedures and structural inefficiencies in debt recovery have been instrumental in limiting the transaction market.

Regulation US sales tax for digital service sales: a tax management guide

In the growth markets, which include Spain and Poland, the picture is rather more encouraging. There is a healthy competition among NPL purchasers and decreasing bid-ask spreads. Local banks are gradually becoming more active, portfolios are more ‘current’ and the quality of NPLs being sold is of a generally higher standard.

In the most mature markets, such as the UK and Germany, NPL sales are an integral part of the financial ecosystem. Lire la suite