Our thinking

European NPLs: Market earns welcome breathing room

What's inside

The ongoing decline in NPL volumes in 2022 and pivot towards smaller disposals leave European lenders well positioned to withstand adverse economic conditions.


Lenders are enjoying the fruits of their labours. Having offloaded their most toxic bad loans, in 2022 banks were instead able to focus on smaller, strategic NPL disposals, even as macroeconomic hardship began to mount.

Europe's banks have been on quite a journey to get their non-performing loans (NPLs) under control through NPL disposal tools including portfolio sales and securitisations. While disposals of toxic debt were interrupted by the COVID-19 crisis, this work has been unrelenting. In last year's edition of this study, we described how NPL sales in Europe in 2021 had bounced back from pandemic disruption; 12 months later, we can report that sales continued in 2022, though at much reduced levels.

That slowdown reflects the extensive progress already made by banks. Most have reached a point where the imperative to further trim their NPL volumes is much diminished—they are free to make disposals according to their strategic and tactical priorities, rather than to avert disaster. That remains true despite the mounting economic and geopolitical volatility that Europe has faced over the past 18 months. 

In this year's report, we examine the outlook for Europe's NPL market, including for secondary sales, over the months and years ahead. The first section considers the changing market dynamics, including the latest NPL data and analysis of what is driving activity. The second section offers a deep dive into key markets across Europe.

The future is highly uncertain. There is a case to be made both for a resurgence in NPL volumes and deal activity, and for a continued slowdown. Much will depend on the economic outturn, where uncertainty levels are even more elevated. The good news, however, is that these are precisely the market conditions in which new opportunities abound.

European NPLs: New buyers emerge as disposals shrink

Despite broad economic turmoil, countries across Europe have so far avoided recession. Banks have been able to catch their breath with the NPL market shrinking steadily post-pandemic. But looking forward, Europe is hardly anxiety-free.

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Regional spotlight on NPLs: Italy, the UK, Greece and Spain

Total NPL volumes across Europe are down and ratios remain stable, with countries such as Italy and Greece having worked especially hard to deal with toxic assets. Even with economic growth set to slow, banks have reason to be broadly optimistic about their NPL levels.

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Subdued headline figures belie nuanced NPL market

Declining NPL ratios have put banks in a somewhat more comfortable position than they were this time last year, but the threat of macroeconomic hardship looms over borrowers.

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