Last year, Portugal was one of the European countries with the best performance in reducing non-performing loans. Concentrating 2% of the NPL stock in Europe, the country accounted for 5,600 million euros of non-performing loans in the national financial system in the third quarter of 2023, a volume that shows a reduction of 22% compared to the 7,200 million euros recorded in the same period of 2022.
These are Prime Yield's accounts in its study "Keep an Eye on the NPL&REO Markets – Portugal, Spain, Greece and Brazil”, which points out that, in the year-on-year comparison, only Greece, with an NPL stock of 8.300 million, and Croatia, with a stock of NPLs of just under 1,000 million euros, have seen bigger reductions than Portugal, with decreases of around 25%.
On the European scene, the year-on-year drop in the third quarter of 2023 was 1.3% for an NPL stock of 362.7 billion euros. Between July and September, Portugal recorded an 11% reduction in the volume of non-performing loans, which was notable as it bucked the prevailing trend in Europe in the quarter.
In the period under review, more than half of the European Union countries increased or stabilized their stock of NPLs in quarterly terms. This can be seen in the aggregate result, with the amount of NPLs in Europe increasing by 0.5% to 362.7 billion euros.
NPL ratio evolved positively in Portugal
Last year, the NPL ratio also evolved positively in Portugal. This indicator stood at 2.8% in the third quarter of 2023, down from the 3.1% recorded in the same period of 2022 and below the 3.0% mark for the first time. Despite this and the progress made in reducing the amount in default, Portugal still has one of the highest ratios in Europe, where the aggregate indicator stands at 1.8%.
As for the dynamics of non-performing loans in companies, they continue to generate the largest volume of non-performing loans, 63% of the national total, but they are also the segment with the largest reduction in stock, of -24% compared to the 3rd quarter of 2022. Of the amount of non-performing loans in companies, 46% relates to loans with real estate guarantees.
Families account for 34% of non-performing loans
The household segment accounts for 34% of the country's non-performing loans, amounting to 1.9 billion euros, of which more than half is concentrated in mortgage loans. In household non-performing loans, the reduction was 17% compared to the same period of the previous year.
The progress of the last year continues the strong deleveraging of the post-financial crisis, which is the result, on the one hand, of the greater solidity of the banking sector, which is now practicing more restrictive lending conditions and has simultaneously strengthened provisioning levels. This resulted in a reduction in the volume of non-performing loans held in the financial system, while there were no new waves of defaults. On the other hand, this deleveraging also reflects the intense sales dynamic of non-performing loan portfolios in recent years," says Francisco Virgolino, Managing Director of Prime Yield.
The universe of active portfolios for trading has been shrinking and transactional activity losing momentum
However, "this also means that today we have a much smaller sales market for this type of asset than before. The universe of active portfolios for trading has been shrinking and transactional activity is losing momentum. We currently have fewer portfolios coming onto the market and those that do are smaller than before, which has naturally led to a drop in the volumes of NPLs traded," he adds.
According to the Prime Yield study, by 2023 the sale of defaulted loan portfolios in the country will have reached 1.4 billion, a decrease of 18% compared to the 1.700 million euros transacted in 2022, which already showed a drop of around 50% compared to the activity recorded in 2021.
In reality, the figure estimated for 2023 is only higher than the approximately 1,000 million euros in transactions recorded in 2020, a year in which activity practically came to a standstill due to the arrival of the pandemic.
With regard to the activity in the sale of non-performing loan portfolios this year, Francisco Virgolino argues that "NPL transactions in Portugal in 2024 should pick up, being especially boosted by the secondary market, where more opportunities should arise". At the same time, there will be greater activity in corporate servicer sales, following the international trend of consolidation in this segment.
