Upcoming European non-performing loans (NPL) sales already at €99.3bn for 2021, following €77.8bn of sales in 2020

• ECB predicts, in a severe scenario, that NPL levels could reach €1.4 trillion once COVID-19 relief measures are withdrawn

Some €99.3bn of non-performing loans (NPL) sales have already been announced in 2021, which would surpass last year’s total of €77.8bn across 103 transactions, according to analysis from Deloitte.

Last year marked a major slowdown in activity from previous years, with values in 2020 down 35% below 2019’s total of €119.2bn, and 62% down from the high-water mark in 2018, when €203.6bn was traded.

The second half of 2020 saw €53.8bn gross book value traded, as processes put on hold returned to the NPL market.

Alok Gahrotra, Portfolio Lead Advisory Services (PLAS) global co-lead and partner at Deloitte, commented: “While the market went into the deep freeze in the first half of 2020, activity rebounded to some extent late last year, especially in Italy and Greece and we expect this trajectory to continue for the rest of this year. Current activity is expected to be primarily focussed on pre-pandemic NPLs, while loans from the pandemic will come to market well into 2022 and 2023.

“The recovery could also follow one of two paths. A rapid economic recovery will mean NPLs may relate to otherwise viable, but illiquid entities, which can be restructured. However, if the recovery is slow and protracted, a rise in credit losses could push NPL stocks in some countries close to levels reached during the last financial crisis. This would potentially increase systemic risk in countries where banks are less well capitalised. In addition, some sectors such as aviation, retail and hospitality have been more affected by the pandemic.

“While the ECB has acknowledged that most banks are adopting prudent financial projections in their reporting since the pandemic, of particular concern is the steady growth of Stage 2 loans - where credit risk has increased significantly since initial recognition. They are a leading indicator for future NPLs and rose to 9.1% in December 2020 from 6.5% in December 2019 (EBA) of total loans across Europe.

Alok concluded: “While we are well over a year into the pandemic now, it is still difficult to predict the shape of the renewed activity in both the NPL and non-core markets.”.”

-Ends-

Notes to the editor

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