European banks are increasingly resorting to agreements with hedge fundsin which they sell part bad loans them to reduce the risk factors in their portfolio and improve their financial situation. In accordance with ECBwhich controls its main banks Eurozonelargest in the last year European banks concluded agreements of this kind for a total amount of 174 billion euros. However, unlike in 2021, when these deals were about Red credits as a percentage of more than 1/3, in 2022, they also included loans that are being serviced.

“Significant risk transfer” has been a constant tactic for banks for years. However, given that these are bilateral and private agreements, the relevant information, as well as the conditions that accompany them, are not published. However, there are estimates such as the ECB’s assessment of last year’s set of agreements, as well as the assessment of Olivier Renaud, CEO of Pemberton Asset Management, who notes that especially in the first quarter of this year, “special activity” was noted type. Banks have repeatedly resorted to this tactic, market participants note, but it is clear that such activity was heightened by fears that inspired European banks during last month’s banking crisis with the collapse of two US regional banks and bailouts. Credit Suisse. The concern is both the risks in their loan portfolio and the possibility of an economic downturn.

Banks seek to reduce risk factors in their portfolio and improve their financial position.

Commenting on this, Robert Bradbury, head of structured lending at Alvarez & Marshal, emphasizes that banks are seeing “market turbulence and tighter controls on large risks and understand that they need to act quickly to finance and capitalize their business, and also to ensure that to enable them to move forward.” forward.” Filippo Aloati, head of the lending sector at Federated Hermes, has a similar assessment of increased demand for these types of deals, which suggests that banks “see the recession knocking on our doors.” Europe, the percentage of loans included in such transactions remains relatively low compared to the balance sheets of European banks.

While the ECB does not release the names of the banks that have entered into such agreements, some banks have themselves said they have sold their loans to hedge funds. BayernLB, for example, said in November, through its head of risk management, Markus Kramer, that it had sold loans worth one billion euros, and that the move had freed up about the same amount that would be set aside for new deals. Also, Italy’s largest bank, Intesa Sanpaolo, announced that during the past year it transferred bad loans totaling 15.7 billion euros through a series of transactions, with one in the fourth quarter of the year worth 7.5 billion euros and being one of the largest in Europe. In February, BNP Paribas and the International Finance Corporation (IFC) announced an agreement under which IFC offered BNP a $50 million guarantee on a $1 billion loan to emerging markets. However, they did not provide information about the terms of their agreement. According to Refinitiv Eikon, at the end of last year, BNP Paribas had assets totaling 2.7 trillion. Euro.