Impact of key drivers on global banking transactions in H2 2020

As part of our Global banking M&A outlook H2 2020 report, we closely examine four areas that will be impacting the transactions market in the banking sector for the second half of 2020, starting with our top picks. Further below, we analyze each impact by geographies before providing a deeper dive into each driver.

Top 3 picks for H2 2020:

1. Fintech to roar

  • Fifty-six percent of key markets expect fintech startups to have either a steady or strong impact: fintech the most prominent driver in H2 2020.
  • India, Indonesia, South Africa and Chile are markets to watch.

2. Regulators eyeing deals

  • Forty-eight percent of key markets expect either a steady or strong impact by regulatory agencies/bodies.
  • China, India, Australia, Indonesia, Italy, and Luxembourg are markets to watch.

3. NPL market in full swing

  • Non-performing loan portfolio sales to foster in H2 2020. Thirty-six percent of key markets expect either a steady or strong impact by NPLs.
  • China, Japan, India, Singapore, Thailand, Italy and Chile are markets to watch.

Key deal drivers under the lens


COVID-19 has become an accelerator for all business models focusing on digitalization, therefore, it can be assumed that fintechs with a proven and sustainable business model and strong capital levels will survive COVID-19 or even emerge from it stronger. On the other hand, fintechs with high burn-rates who have yet to achieve reasonable levels of revenue could be severely challenged, depending on the duration of COVID-19 and investor patience. At an aggregate level, while we are likely to see a reduction in overall investment as a result of COVID-19, larger M&A deals could take place as incumbents and investors recognize the need to accelerate digital transformation. Some high-end M&A transactions are taking place, instigated by incumbent banks and scaled fintech (which are aiming at expanding into other markets). Furthermore, technology companies are seizing opportunities that have emerged during COVID-19.

COVID-19 will be a catalyst for greater digitization of the banking and finance industry as we expect a permanent shift from customers to digital services and channels. We predict M&A activity to rise as incumbents make larger strategic investments and pursue bolder M&A deals to accelerate their transformation efforts.

Ian Pollari
Partner, Global Co-leader, KPMG Fintech practice
KPMG Australia


Before the COVID-19, the regulatory attitude had softened toward bank M&A. For instance, in Asia Pacific, new policies and incentives sped up consolidation with governments actively promoting the entry of tech-based firms and fintechs which introduced greater innovation and competition. In Europe, some policymakers are favoring consolidation to establish regionally dominant players and accelerate the Eurozone banking union. However, divisions remained between local regulators, politicians and the ECB’s Single Supervisory Mechanism. In America and specifically with US revisions to Dodd-Frank — through the Economic Growth, Regulatory Relief and Consumer Protection Act (aka the Crapo Bill) – attempts were made to ease compliance burdens faced by the US financial institutions. For financial regulators, however, the early part of 2020 has been overshadowed by COVID-19. Work plans and timelines required reprioritization as regulators reacted to the extraordinary pressures confronting markets, firms and consumers. Some regulatory bodies have suspended or decelerated approval processes and have even adjusted timelines for merger review procedures. Moreover, the resulting backlog of transactions may cause delays in obtaining regulatory clearances for new proposals. Banks with strong levels of capitalization and liquidity may see loosening, rather than tightening, of regulatory requirements. In addition, asset quality deterioration is expected, however government stimulus and regulatory relaxations may help banks to manage NPLs and credit costs.

Private equity

In Asia Pacific, PE and sovereign wealth funds are taking predominantly minority stakes in banks, largely due to foreign direct investment restrictions. These investments seek to recapitalize banks to support continued lending growth (+20 percent a year), driven by growing middle-class consumers, real estate lending and infrastructure development. As funds assess the immediate impacts of COVID-19 on their portfolio companies and with significant dry powder to deploy as the situation stabilizes, PE players are expected to continue to target growth banks, platform-driven digital banks, non-banking financial institutions and insurance brokerages.

In Europe, PE continues to show significant interest and has surplus dry powder and expertise to invest across the financial services spectrum. There is continued interest across a range of sectors including digital lending platforms, capital markets infrastructure, insurance distribution, and wealth management. As the economic cycle turns, PE attention is likely to refocus on the NPL markets, and opportunities to purchase portfolios from both bank and non-bank lenders.

Before COVID-19, PE’s direct investment in North American banking remained at modest levels, focused on underserved niche areas like subprime and small business lending. Direct investment in depository institutions was negligible, amid benign credit market conditions. However, current market dislocation presents opportunities for private investors in liquidity constrained areas of the market, such as mortgage, small business and consumer lending. In the medium-term, the post-COVID-19 recession may present a need and opportunity to recapitalize medium-sized financial institutions most affected by the likely substantial resulting credit losses. Other areas of interest like wealth management and related wealth management technology; benefits and fund administration; and insurance distribution and services may see declining activity, notably as companies experience drops in revenue and profits and sellers would like to wait for more benign conditions before examining an exit.

Loan portfolio sales

In Europe, COVID-19 is slowing down non-performing loan portfolio sales. The first quarter of 2020 (with a total volume of loan sales of €3.8 billion) saw the least activity since 2015. Before the market stopped, some deals managed to close with the only activity in Spain, Italy and Cyprus. On paper, a large amount of portfolios (around €80 billion of loans) are still on the market. As consequence of COVID-19, the default rates are expected to increase in the coming years (with a time lag effect). The macroeconomic context could foster long-term non-performing loan portfolio sales in mature markets (Italy and Spain). In Italy, in the third quarter of 2020, a strong acceleration of NPLs disposals driven by the opportunity to convert the Deferred Tax Assets in tax credits could take place. In this context, it is possible to see increased emphasis on Southern Europe (in particular, Greece and Cyprus) and a low level of activity in the new jurisdictions (Turkey and Ukraine) due to high volatility. While the interest in unsecured portfolios, secured corporates/SMEs, RE (real estate) would remain, granular secured deals, real estate-owned (REO) rented portfolios, re-performing and unlikely-to-pay (UTP) loans are likely to capture more interest.

In Asia Pacific, NPL markets remain active in China and most Asian countries. Given the economic impacts of COVID-19, more liquidity and prudent risk management could lead to a rise in buy and sell transactions. Banks are disposing off both corporate and retail loans, and the region has many asset management companies (AMCs), corporate investors and distressed (special situations) funds to invest into. Recently, there have been cases where strategic investors from various industries acquired strategic assets from NPL pools. With COVID-19, an increase in NPLs and default situations is reasonably expected, especially from those vulnerable sectors such as aviation, hotel, retail and real estate across the whole region. Consequently, we expect that this would pave the way for distress investors looking to buy at deep discounts. Moreover, as a global scenario takes strides toward economic improvement, the recently released US–China trade agreement could give new hope, allowing more American investors to invest into China NPL markets and asset management companies.

Key driver analysis

The impact of key drivers of deals are not uniform across the globe. Therefore, we have provided a geographical breakdown of each driver per country. The impact of COVID-19 is clear when we compare with our previous report completed in early 2019 (PDF 2.6 MB).

Key drivers analysis readings