Earlier this month, the European Commission’s NPL Advisory Panel released a comprehensive report analyzing the current state of non-performing loan (NPL) secondary markets in the EU. The report provides a timely overview of NPL trends, market developments, and key challenges, especially in light of evolving regulatory frameworks and macroeconomic uncertainties. Accuria (formerly NPL Markets) is an active participant in the NPL Advisory Panel. We commented on prior work of the NPL Advisory Panel:
NPL Advisory Panel Survey on the Market for Non-Performing Loans
Further developing secondary markets for non-performing loans: the role of securitisation
The State of NPLs in the EU
The EU’s banking sector has significantly reduced its NPL stock over the past decade, thanks to proactive risk management, regulatory initiatives, and the expansion of NPL secondary markets. However, recent economic pressures, including the cost-of-living crisis and tightening financial conditions, have led to a slight increase in NPL ratios in certain jurisdictions. The average EU NPL ratio stood at 1.9% in Q3 2024, with notable increases in Austria, France, Germany, and Romania.
NPL Secondary Markets – A Changing Landscape
While NPL sales remain a key mechanism for banks to offload distressed assets, deal volumes have declined due to lower NPL stock and changing investor sentiment. Total NPL deals in 2023 amounted to €76 billion, down from historical highs in previous years with another sharp decline expected for the full year 2024. A shift towards secondary sales, re-performing loans (RPLs), and sub-performing loans (SPLs) is reshaping the market, with institutional investors adjusting strategies amid rising interest rates.
Key Trends:
- Reduced NPL securitization following the discontinuation of government-backed guarantee schemes, however, see our comments on Greece below.
- Consolidation among credit servicers, with larger players managing increasing volumes but facing profitability challenges.
- Growing demand for tailored portfolio sales, with secondary sales gaining prominence as investors rebalance portfolios.
Spotlight on Greece’s HAPS 3 Guarantee Scheme
Greece has been proactive in addressing its NPL challenges through the Hellenic Asset Protection Scheme (HAPS). The initial phases, HAPS I and II, enabled Greek banks to offload significant NPL volumes by providing state guarantees on senior tranches of securitized NPL portfolios. Building on this success, the Greek government introduced HAPS III, extending the program with an additional €3 billion in state guarantees until June 2025 to facilitate the clearance of remaining NPLs, particularly in non-systemic banks.
The extended program includes nine new securitisations, covering €9.5 billion in gross book value (of which €3 billion will be backed by state guarantees). Three of these securitisations were previously requested under the last scheme. Six additional securitisations are planned, including two from less significant institutions. While the impact on systemic banks is largely accounted for, less significant institutions are expected to see a substantial improvement in their NPL ratios. The major Greek banks have returned to profitability, boosting capital reserves and allowing them to resume dividend payments in 2024, the first time since 2007
Post-Programme Surveillance Report Economic and Financial Affairs – Greece, Autumn 2024
Impact of the European NPL Directive on Credit Purchasers and Servicers
The European NPL Directive (Directive (EU) 2021/2167) seeks to harmonize the management of NPLs across Member States, directly impacting credit purchasers and credit servicers in several ways. The Directive introduces a more structured regulatory framework that aims to strengthen investor confidence while ensuring ethical and consumer-friendly debt servicing practices.
Key Implications:
- Authorization Requirements: Credit servicers must obtain authorization from their home Member State, ensuring compliance with regulatory standards.
- Cross-Border Operations: Authorized credit servicers can “passport” their services across the EU, improving market efficiency and integration.
- Consumer Protection: The Directive enforces robust borrower protections, ensuring that NPL transfers do not compromise consumer rights.
- Operational Adjustments: Both credit purchasers and servicers must adhere to standardized reporting and disclosure obligations, enhancing transparency in NPL transactions.
The chart shows the types of modifications and forbearances offered to borrowers based on the NPL Advisory Panel Survey on secondary markets for non-performing loans carried out in spring 2024.
Source: NPL Advisory Panel paper: Monitoring the state of non-performing loans (NPL) secondary markets
Spotlight on Challenges for Credit Servicing in Greece
While Greek banks have successfully offloaded NPLs via securitisations, these loans remain within the Greek economy, now managed by credit servicers. As of June 2024, credit servicers managed €69.8 billion of NPLs. Despite improvements, several operational bottlenecks continue to affect credit servicers’ ability to efficiently resolve distressed debt:
- Judicial delays: Legal proceedings, particularly foreclosure and liquidation processes, remain slow.
- Unsuccessful auctions: A high percentage of failed auctions has limited recoveries from collateral.
- Underperforming securitised portfolios: Some older HAPS-backed NPL portfolios have not met expected recovery levels. The exact amount of payouts required under the state guarantees will not be known for some time. For the Italian GACS NPL securitisations we estimated significant payouts [Performance update for Italian NPL securitisations July 2024]
Without effective debt restructuring solutions, these unresolved NPLs constrain access to new credit, slow economic growth, and impact Greece’s sovereign rating outlook. Hence, to fully unlock the benefits of NPL reduction, Greece must enhance judicial efficiency and strengthen credit servicers’ capabilities to ensure timely resolution of outstanding debts.
Outlook for European NPL Markets
While NPL ratios remain at historically low levels, macroeconomic risks—including inflation, interest rate volatility, and geopolitical uncertainties—could drive renewed pressure on asset quality. Market participants anticipate a moderate increase in Stage 2 loans, signaling potential future NPL growth.
At the same time, the evolving regulatory framework is expected to support a more structured and transparent market for NPL trading. Stakeholders should closely monitor how the NPL Directive will shape the market, particularly regarding cross-border transactions, better standardised disclosures and broader investor participation.
