Spain remains in second place on the podium of the European NPL market. Prime Yield, specialised in the valuation of real estate assets and loans and part of the Spanish group Gloval, has launched a new edition of its report on the NPL market. This document examines the current situation and future expectations of the market.
At the end of the third quarter of 2023, the volume of non-performing loans in Spain reached EUR 77 billion, representing 21% of the total European NPL market, according to the European Banking Authority (EBA). Compared to the same period of the previous year, there was a decrease of 2.5%, while remaining stable compared to the previous quarter, with 76.7 billion euros.
Over the last three years, the NPL market in Spain has experienced fluctuations, with changes in the last 15 quarters, placing the current stock only €500 million below that recorded in the first quarter of 2020.
Spain has the second largest accumulation of NPLs in Europe, behind only France, which has a stock of EUR 116.8 billion in NPLs. Regarding the NPL ratio, for the fourth consecutive quarter, it remained at 2.8%, registering a year-on-year increase of 0.1 p.p. from 2.7% in the third quarter of 2022. Despite the improvement in this indicator in recent years, it remains above the European average of 1.8% and is the fourth highest in Europe, equal to Portugal and only surpassed by Poland, Greece and Hungary.
In detail, NPLs in households constitute the largest part of NPLs in Spain, with EUR 45.9 billion in the third quarter, equivalent to 60% of the total, and marking an increase of 2.7% compared to the previous year. Of this figure, 49% corresponds to mortgages, up 1.4% year-on-year.
For non-financial corporations (NFCs), the stock of non-performing loans represents 39% of the total, reaching EUR 30.2 billion in the third quarter of 2023, reflecting a decrease of 10.4% year-on-year. Of the total NPL stock of NFCs, 27%, or €8.2 billion, is secured by corporate properties, down 18.8% year-on-year.
Potential Deals in Spain's NPL market
Spain experienced a surge in "bad" loan transactions in 2023, marking an increase in the velocity of NPL and REO deals, as well as resuming the launch of large deals, a practice not seen for years. Among the most notable transactions, both completed and ongoing, are: Project Nairobi (EUR 500 million, sold by BBVA to Kruk & Cerberus), Project Victoria (EUR 3 billion, sold by Sareb to Axactor), Project Spirit (EUR 1.1 billion, sold by Santander to Cerberus), Project Valhala (EUR 1.6 billion, launched by Deutsche Bank) and Project Sunshine (EUR 6 billion, launched by Axactor).
According to Prime Yield's estimates, annual sales of these portfolios are expected to reach between €15bn and €16bn by the end of 2023, which would represent a significant growth of approximately 40% compared to €11bn in 2022. This indicates a return of large deals to the market, a trend that has gained momentum especially since the second half of the year.
For 2024, expectations are positive, with detections of approximately €7 billion in the market to date. However, a more contained sales flow is anticipated compared to 2023, with deals expected to reach €12 billion. Although some of the largest transactions are expected to be brought forward to 2024, the sales dynamics of large portfolios are not expected to be as intense as in 2023.
Changes in the NPLS market
On the other hand, the market is undergoing significant change, with several of the largest active investors of the last decade rotating their portfolios. This phenomenon is not unique to Spain, with the sale of Marathon's EUR 1.2 billion portfolio, initiated earlier this year, being a clear example of this trend.
Corporate activity is expected to remain intense in the coming months, with ownership changes in some service companies. A recent example is the sale of Relanza, managed by Bankinter, with more than 16,000 million euros, to Gescobro, owned by Cerberus. At the same time, companies such as Oaktree are in the process of negotiating the sale of their services divisions and part of their managed portfolios.
According to Francisco Virgolino, managing director of Prime Yield, "The European markets covered by our research are performing differently from each other at the end of the third quarter of 2023. In Spain, NPL sales activity has increased year-on-year with the profitability of large portfolio trading. And this seems to be the trend for the coming year, where in addition to expecting large jumbo deals, there is also greater potential for activity in the secondary market for non-performing loans, which will be boosted by the transposition of the new EU directive into Spanish law".
