Stress tests prompt NPL rethink

Bad debts imply high capital requirements under regulators’ new stress-testing regimes, prompting some institutions to look at selling portfolios rather than slowly restructuring them. But it may not be an overnight change. Joe Rennison reports


The growing importance of stress tests in bank regulation is prompting European institutions to reconsider their traditionally clingy approach to non-performing loan (NPL) portfolios, and leading to forecasts of a dramatic increase in the supply of bad debt. PwC, for example, anticipated a jump from €11 billion in 2010 to €60 billion last year. This is music to the ears of distressed debt investors, but they may need to be patient.

The logic is straightforward: in the past, if banks met their

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