Efforts by European banks to reduce their exposure to toxic real estate loans face a setback, after an additional €500bn (£427bn) of lending to non-core assets showed up on balance sheets in 2012, according to research from PwC.

Total non-core assets held by European banks totalled €2.4trn at the end of 2012, a decline of just €0.1trn. This has been largely offset by the pool of loans added to the overall pool by banks over the year, fuelling fears around the size of the funding gap for European real estate.

The deleveraging process will last for "at least another ten years", according to Richard Thompson, chairman of PwC's European portfolio advisory group.

However, European banks find themselves under conflicting pressures both to deleverage, and to boost economic growth by boosting this lending, Thomas said: "There is also a real conflict with the desire from many quarters for banks to increase lending to stimulate the economy. Given that identified non-core loan assets make up around 5% of total banking assets, the deleveraging agenda could have a sizable impact on economic growth.

"If we look at potential loan portfolio transactions, PwC estimates there is only €70-€80bn of equity funding available in the market. This means that those banks that are first to market continue to have an advantage."