Investors are likely to be keener to buy European non-performing loans this year in an effort to increase returns, according to Ernst & Young's 2013 non-performing loan report.

Europe is growing as an NPL market, with an estimated €1trn of NPLs now on the balance sheets of the region's banks.

Mathieu Roland-Billecart, a partner in Ernst & Young's corporate finance practice, said: "This year's survey indicates an increasing appetite among investors on both sides of the Atlantic for European NPL product as they look to both diversify their investments and access potentially higher returns in a nascent market."

The survey indicated that the UK would be the second-most popular European market for NPLs after Germany.

Roland-Billecart said: "NPLs collateralised by commercial properties in Germany, the UK, Ireland and Spain are currently attracting the greatest interest from investors. German and UK banks have already experienced a fair amount of distress but clearly investors are anticipating more product waiting in the wings and these remain highly popular investment markets."

Almost half those asked said that Germany would be their primary market interest, while 40% said the UK.