The Market Opportunity

There are over EUR 1 trillion of non-performing loans (NPLs) and non-core assets in Europe. Many of these sit on bank balance sheets and more are created every day. For banks to maintain adequate capital ratios, these assets have to shift into the capital markets. Economic dislocation related to the COVID-19 pandemic means that Arrow’s target NPLs and non-core assets are expected to increase by around 50%.

  • The impact of COVID-19 is forecast to increase the European market by over 50% in the next two years
  • In Italy, the NPL ratio is expected to surpass the historical peak, whilst peaks in Portugal and Ireland are to be lower than historical highs

European NPL and ‘Non-core’ Credit Market, 2019

* (primary and secondary market)

The Market Opportunity

Arrow’s five markets contain over EUR 500 billion of non-core and non-performing assets (prior to any assumptions around COVID-19 related economic dislocation) on bank balance sheets alone.

There is already a large and active secondary market in assets that banks have sold in the past.

Assuming an average hold period, and 50% already collected, then the secondary market in the next five years will be significant.

Italy

€231.4bn

Portugal

€15.2bn

UK

€148.1bn

Ireland

€85.9bn

Netherlands

€21.8bn

Assuming 6yr average hold
period and 50% already collected

Estimated secondary sale market for portfolio investments

High Value Niches Drive Returns

 

European Banking Landscape

The value of European banking assets is more than 2.5 the US, but these assets are deeply fragmented and take a long time to resolve. For a vertically-integrated asset servicer and asset investor like Arrow, this means a universe of over €1 trillion of assets we can trawl to cherry pick opportunities regardless of economic cycles.