Spain Leads Europe in Doubtful Loans with Second Highest Stock of NPLs in the Continent

Spain continues to lead Europe in doubtful loans. According to data from the European Banking Authority (EBA), the stock of ‘Non Performing Loans’ (NPL) that banks currently carry in the domestic market stands at 79,000 million euros.

This amount, reached in the summer of 2022, is 3% lower than that registered in the third quarter of the previous year (with a reduction equivalent to 2,600 million euros), but it remains the second highest in the Old Continent.

As explained by Prime Yield, a firm specializing in the valuation of assets and real estate loans for investment funds and banks that is part of the Spanish appraiser Gloval, “these data show that Spain once again represents the second country in Europe with the largest stock of NPL, 21% of the total 367.4 billion euros, only behind France, which has 30% of the European stock of doubtful loans”.

The volume of doubtful loans carried by Spain exceeds the sum of Germany, the Netherlands and Belgium; and multiplies the stock of NPLs in Portugal by more than 10 times.

If we look at the weight of doubtful loans over the total, we discover that the NPL ratio in Spain stood at 2.7% in the third quarter of 2022, almost one point above the EU average (1.8 %), despite dropping four tenths in one year. It is the third highest figure of the main European countries, behind Greece (4.9%) and Portugal (3.1%). Italy is the fourth most prominent country, with 2.6%, while France is on a par with the community average.

Households account for 57% of delinquent loans

According to the Prime Yield document, more than half of delinquency in Spain comes from households (57%), with 44,700 million euros, in line with the summer of 2021 and after increasing by 1,000 million compared to the second quarter. The company points out in this sense that “throughout 2022 a total of 717,600 homes were sold in Spain, according to notaries, around 7% above the 674,250 in 2021. This is a level of transactional activity only surpassed by the historical peaks of sales registered between 2004 and 2007”.

Of said amount, 49% of the NPL corresponds to mortgages, with 22,900 million euros. “It should be noted that, with 463,600 new contracts signed in 2022, the granting of new mortgage loans also continued to rise, exceeding those signed in 2021 by 11%. This trend was even more significant in terms of the total amount lent, which grew more than 17% year-on-year to 67,500 million euros in 2022,” the study points out.

For his part, non-financial corporations accounted for 43% of the aggregate delinquency recorded at the end of the third quarter, 33.7 billion euros, with a decrease of 7% in the last 12 consecutive months. Within companies, 64% of the delinquency of companies is assigned to SMEs with a total of 21,600 million euros, decreasing 4% from the third quarter of 2021.

Possible fall of 10,000 million euros this year

Throughout 2022, banks transacted 11,000 million euros in doubtful loans, compared to the 15,000 million estimated by the valuation company, due to the impact of interest rate rises and economic uncertainty.

As the company explains, “several sales processes that were active in the market, for a total of close to 4,000 million euros, ended up falling as the rise in interest rates in the second half of the year intensified the imbalance in the price expectations between sellers and buyers In addition, the rise in interest rates made the credit that usually backs this type of operation more expensive, increasing the difficulties for purchase funds to obtain financing, but, simultaneously, increased the attractiveness associated with other classes of assets”.

In this scenario, they insist from Prime Yield, 2022 was a year of loss of momentum in this activity, after a 2021 of strong recovery in NPL transactions, reflecting the combination of a context of maturing markets and economic uncertainty. Despite the efforts made by the banks in the final stretch of the year to speed up the sale of doubtful loan portfolios, showing a rate of activity not seen in several years, 2022 ended with a lower than expected trading volume.

Looking ahead to this year, NPL volume is expected to continue to decline, especially after the summer. In this sense, the company believes that NPL portfolio selling activity should intensify from mid-yeardespite the fact that it has been very limited at the start of 2023, and estimates that the year could close a volume of transactions of 10,000 million euros, which would mean a drop in stock of close to 9% year-on-year.

“The expectation is that, from the second quarter, the new portfolios for sale will begin to reach the market, accelerating the pace of launches after the summer. Santander is one of the entities that should lead this movement, with various portfolios for sale for a total of 3,000 million euros, which includes both secured and unsecured assets.For its part, Caixabank is expected to seek buyers for portfolios totaling 2,000 million euros, in an attempt to repeat the sales target achieved last year. And BBVA, Sabadell, Bankinter and Unicaja Banco should also be NPL sellers in 2023, albeit at a slower pace,” concludes Prime Yield.