Ernst & Young Reports on Global Nonperforming Loans

The Global Nonperforming Loan Report 2006, released by Ernst & Young, indicated that the global market for nonperforming loans (NPLs) is in the hub of its hottest deal activity, as compared to the last 20 years. Moreover, the market for it is ever growing.

Ernst and Young points out that the NPL market has developed into a full-blown and prime global market from a sequence of provincial market openings. This astounding fact is backed by the three dozen chief NPL sales over the last one year by German lenders. The predictable lift up sale activities in China for the next few years, anticipates a much better performance in the following years.

This increase in investment market for packages of nonperforming loans was due to the collapse and the subsequent government-backed rescue of the US Savings and Loan industry in the late 1080s. Thus, the nonperforming loans got importance throughout the globe with major NPL sales in Asia and Europe. According to Ernst & Young, the NPL market got over US$4 trillion during its peak time. This enormous sum is approximately one and half times the total proposed US fiscal budget for the year 2007.

As a result of the fiscal catastrophe in Asia in 1997, the Nonperforming Loans stated gaining momentum. In the present age, Nonperforming Loans are traded in more than 12 global markets, together with some of the world's leading economies like Japan, Germany, India and China. This development of global multi-trillion dollar marketplace led to an enormous learning curve for banks, regulators and investors. The average revival of NPLs will be approximately 33 cents on the dollar due to deprived and insufficient regulation and malfunctioning to reform banking systems.

According to Ernst & Young's Global Nonperforming Loan Report, the depth of China's total NPL exposure is estimated to be around US$900 billion, which is much more than any other country. For China, it appears that the NPL problem will persist as China's worked up property markets will produce new NPLs in the next few years. Ernst and Young subsequently withdrew this report.

The report indicates that Japan, Taiwan, and Korea have effectively dealt with the most important NPL problems in the last few years. Indonesia and India are facing major NPL problems, thus making it a major market for NPL investors. According to the report, Germany is the largest NPL market in Europe with over US$300 billion in bad loans. Transparency, good mix of NPL product, and a growing appetite among investors for NPLs backed by real estate saw a rise in NPL investors in Germany making it the most active NPL market in the world.

The Global Nonperforming Loan Report 2006 by Ernst & Young portrays a healthy and prime market for NPLs that draws more investors with enhanced quality of NPL offerings. The report predicts the NPL market to flourish in the upcoming years with capital flows to distressed assets to attain record levels over the next few years. Through this report, Ernst & Young shows the minute details and the meticulous knowledge shared by Big Four firms in anticipating the net profit and challenging areas of investment in regional and global basis.
For more articles please visit :
http://www.big4.com/Big4newsletter.aspx