European NPLs: Smaller deals and a slower pace

The European non-performing loan landscape looks very different in 2022, with large deals driven by urgent government regulation supplanted by small but steady opportunities.

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Foreword

The market for non-performing and non-core loan deals remains in business—but not in the way that many expected after COVID-19 shut down vast swathes of the European economy.

The banking sector's sale of legacy loans revived in 2021 following a marked slowdown in 2020, though the market did not return to the large-scale stocks of non-performing loans (NPLs) that were seen before the pandemic.

This may change if more distressed debt begins to emerge, having been protected by state interventions intended to support businesses affected by COVID-19. The events in Ukraine may also drive an increase in bad debt provisions and NPL volumes. For now, though, sellers, buyers and NPL market participants, such as servicers, are operating in a very different environment.

In this report, we take the temperature of that environment. The first section considers the changing dynamic of the marketplace, covering the outlook for NPLs, the rise of the secondary market transactions and the emergence of new types of NPL investors.

In section two, we take a deep dive into key markets across Europe. As in previous years, the economies of Southern Europe, led by Greece, Italy and Spain, were hotspots for NPL transactions. But other areas—notably Ireland, where NPL numbers were already relatively low—continue to see activity. Even in countries where banks are making very few disposals, the secondary market provides opportunities.

With so many unknowns, including the outcome of the situation in Ukraine and its impact on economics, the future for NPLs remains uncertain. But clear trends are emerging, from the growth of new entrants to the growing importance of data and analytics tools in driving value.

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Aerial top down view of a motorboat traveling over blue sea

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