The Council Nordic NPL Market Insight March 2021

Findings:

• A sample of Nordic banks and niche banks have been reviewed and 100% exhibit increased credit losses
• The Swedish Bailiff reports a slight increase in number of endebted consumers and a large increase in the capital owed
• Very little activity in the Nordic NPL markets during 2020, with more activity among buyers and sellers Q1 2021, and diversified portfolio pricing

The credit market situation- increased credit losses:

The Council has reviewed annual reports of a dozen large and medium sized banks, niche banks and credit providers, of which some 75% provide consumer credits only, and 25% provide a mix of consumer and corporate credits. All of the credit providers exhibit increased credit losses for the full year of 2020 compared to 2019, and we can conclude that the pandemic definitely has lead to increased consumer credit losses specifically, and overall
credit losses generally. At the same time 25% of the reviewed institutions report increased profit numbers, 75% decreased profit, why we also conclude that credit providers results have suffered as a consequence of the pandemic and increased credit losses.

In the group of institutions credit loss increases range from the lowest at 12.5% , and 144% at the highest, compared to 2019, with the median level of increase at around 50%. Looking at the above numbers, one could argue that as lending increases credit losses also increase, and that we have not yet seen any reported decreases in payment ability from consumers. Actually, in Sweden the disposable income for households increased during 2020, according to the Swedish Riksbank, mainly due to the large financial policy support actions, and the savings ratio has almost doubled. We have looked at the numbers from the Swedish Bailiff and while there is a slight increase in the number of indebted individuals, from 397 000 in 2019 to 402 000 in 2020, the oustanding debt has increased by almost 5 billion SEK to 87.3 billion SEK. The median outstanding debt has doubled during the last ten years. We are looking forward to the Debt Collection Companies Association to publish their numbers on collection levels for 2020 later this year, which will tell us more about the repayment capacity among consumers.

The NPL market- emerging activity in a more diversified pricing environment:

During 2020 there were very few NPL deals in the Nordic market. The sellers did not reach their price expectations particularly for Forward Flows, and buyers expected prices to go down and waited for such market movements. Also, as we have reported in previous market insights, a number of traditional buyers withdrew from the market, causing a lack of demand and lower investment appetite for NPL portfolios. However, in Q1 2021 we at The Council have contact with several sellers and buyers of NPL portfolios and we see much more activity from both sides.
• Institutional investors and debt collection companies start to allocate capital for portfolio acquisition
• More discussion about structuring portfolios and sales is taking place, and sellers are looking for new alternative sales methods
Overall asset prices are rallying in many markets, equities and real estate market valuations keep increasing. This means that the risk level is increasing and that investors start looking for more diversification, and NPL portfolios can be a target for these investors. Consequently, we experience that demand is coming back to the market, at the same time we see a more diversified picture when it come to the risk appetite and the prices:
• Underlying credit quality becomes relativy more important
• Certain investors will avoid high cost credits and pay day loans
• Pricing difference between large ticket loans and small ticket is increasing
In this environment NPL sellers, credit providers, can support the value of their portfolios and improve potential bid pricing. We suggest among other things:
• Make sure that they reach a broad investor base, for example by cooperating with The Council
• Go digital and use NPL Markets platform for making their own analysis and valuation, as well as for marketing and selling of portfolios
• Increase transparency about what they are looking for, such as more open bidding auctions and certain disclosing of price expectations
• Make sure they have all the information about their own debt and performance data after default
We at The Council are actively supporting investors and sellers to meet, and we offer advisory services to optimize value for both parties, and we represent NPL Markets in all the Nordic markets.

About us

The Council was established 2012 and offers advisory services within risk, compliance and governance to financial companies in Europe. Within our new business line, The Council offer investments advisory and transaction services to NPL sellers and potential investors. We have access to a network of up to 400
international investors and we manage both traditional NPL sales as well as sales through structuring NPL portfolio investments. We have gained vast experience from the NPL investments evaluating over a hundred NPL portfolio investment case over the years. We offer a smooth, efficient and anonymous sales process securing best possible commercial terms for your NPL sale. The NPL market- emerging activity in a more diversified pricing environment:

During 2020 there were very few NPL deals in the Nordic market. The sellers did not reach their price expectations particularly for Forward Flows, and buyers expected prices to go down and waited for such market movements. Also, as we have reported in previous market insights, a number of traditional buyers withdrew from the market, causing a lack of demand and lower investment appetite for NPL portfolios.

www.thecouncil.se