European non-performing loan trends in a post-COVID-19 world
Debtwire's new report Grass roots and green shoots, published in association with White & Case, considers the performance of the non-performing loan (NPL) market in Europe as a resurgence in activity is anticipated in the wake of COVID-19.
Key findings include:
- Activity shut down in the second quarter of 2020 as the European NPL market went into lockdown along with the rest of the economy. Prior to the pandemic, NPL levels were already subdued—this long-term fall in activity coupled with the COVID-19 lockdown, saw NPL and non-core loan deal value fall by 34 per cent year-on-year to €67.7 billion, making 2020 the least active period since 2016. However, the final quarter of the year witnessed a partial recovery with €28.6 billion of these deals taking place in Q4 2020 alone.
- Italy and Greece remain stand-out NPL hotspots, but other markets are beginning to show signs of activity. Europe’s two largest NPL markets, Italy and Greece, accounted for the majority of European NPL activity in 2020. This trend is likely to continue as both economies benefit from government supported NPL securitisations and high levels of legacy NPL stocks. As 2021 progresses, live Greek NPL deals continue to account for much of the NPL pipeline. However, levels also look set to rise throughout the rest of Europe, as total provisioning levels in the UK, Spain, France, Italy and DACH almost doubled to reach €71.8 billion in 2020.
- As COVID-19 vaccines continue to be rolled out globally, many deals are expected to return to the table. With support measures set to unwind and protection schemes come to an end, NPLs are likely to come back to the fore. Some deals paused last year are now managing to complete—January 2021 saw €3.3 billion worth of NPL deals close. Furthermore, deal pipelines for pending deals have replenished with Debtwire tracking €51.6 billion in live deals at the start of the year. However, while a rise in NPLs is expected, the specifics of such developments remain clouded for the time being.
