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Sale of non-performing loan portfolios in Portugal: Business in pipeline this year already totals 1 billion euros

10 MAY 2022
Bancos Destaque Notícia Homepage Economia
At the end of 2021, Portugal had €7.7 billion in non-performing loans in the banking sector, equivalent to 3.5% of the total amount of credit granted. This stock of NPLs declined 37% from the end of 2020.
The year 2022 could return the activity of non-performing loan (NPL) portfolio sales in Portugal to pre-Covid levels, when the pattern of transactions was between €6.5 billion and €8 billion. The estimates are presented by Prime Yield in its latest edition of the study "Keep an Eye on the NPL&REO Markets," according to a statement sent to SUPERCASA Notícias.

The company, which has an area of specialized services in the market for NPL&REO with operations in Portugal, Spain, Greece and Brazil, counts in the first quarter of this year a pipeline of EUR 1 billion between NPL portfolios already traded, under negotiation or on offer in the domestic market. This volume of business identified in the first three months of the year alone already amounts to the total amount transacted in 2020, thus opening up good prospects for investment activity in this type of assets in 2022. 

"Notwithstanding the fact that non-performing loans in the banking sector have continued to decrease, the strategy of most Portuguese banks continues to be to reduce the stock of non-performing loans, with several sales processes currently underway or already announced, including those of institutions such as Bankinter, Santander, EuroBic and Millennium bcp. In addition, it is expected that new sales processes will be launched in the coming months by CGD and Montepio Geral," explains Francisco Virgolino, Head and Partner of NPL&REO Portugal at Prime Yield.

On the demand side, the responsible highlights the "high interest of investors in NPLs in the Portuguese market", noting that 2022 may also be a year marked by the entry of new players in the market. "There are still many large portfolios, especially those that are uncollateralized, coming on offer in the market this year, while the portfolios of bad debt that are collateralized will have a lower aggregate value. This type of diversification of supply will attract a wider range of investor profiles, including those with lower investment tickets," notes Francisco Virgolino. 

"With the good the expected dynamics on the supply side and the diversification of active investor profiles, we have no doubt that 2022 will not only continue the recovery trend of NPL transactions started last year, but also gathers all the conditions to position the activity again at the pre-pandemic pace," says that responsible. 

In 2021, Prime Yield estimates that NPL portfolios have been transacted in Portugal worth €3,000 to €3,500 million, tripling the residual activity of less than €1,000 million recorded in 2020, the year in which this market came to an almost complete standstill due to the pandemic. 

Although no shortage of non-performing loan portfolios for sale is expected in the market, the domestic financial system has continued to take firm steps in its deleveraging, reducing the amount of non-performing loans by almost 37% in the last year(*). At the end of 2021, there were around €7.7 billion in NPL among domestic banks, down €4.5 billion from the €12.2 billion recorded at the end of 2021. Households hold 32% of the non-performing loans accounted for, €2.5 billion, of which around half is allocated to financing for house purchases, a total of €1.2 billion. Most of the NPL continues to be with companies, which account for 64% of the total, equivalent to €4.9 billion. Among companies, SMEs stand out, accounting for €3.2 billion of non-performing loans at the end of 2021. In any of the segments, the trend was also a strong reduction in non-performing loans compared to 2020, with annual decreases of 31% in NPL among households and 37% among companies. 

The volume of non-performing loans in Portugal currently corresponds to 3.5% of the amount of credit recorded in the national financial system. This indicator, called the NPL ratio, has also been falling, retreating from the 4.9% ratio registered a year earlier. Nevertheless, Portugal still has the fifth highest NPL ratio in Europe and surpasses the European Union average, which stood at 2.0% at the end of 2021. 

In terms of stock, there were €393,100 million in non-performing loans in the European Union at the end of 2021, of which 2% were concentrated in the Portuguese financial system. In this indicator, Spain stands out, now accounting for 21% of the NPL stock in Europe, only surpassed by France. In addition, while the vast majority of European countries have continued to reduce their non-performing loans, Spain has been increasing its stock, from €69.7 billion at the end of 2020 to €82.4 billion at the end of 2021. The NPL ratio in Spain is 3.0%.

The conclusions result from the most recent "Keep an Eye on the NPL&REO Markets", produced annually by Prime Yield to provide insight into the potential for bad debt transactions in countries where the company is active with services to this market sector. In addition to Portugal, the study also presents an overview of Spain and Greece, as well as Brazil. For each country, this study presents a balance of the NPL transactional activity in 2021 and the outlook for 2022, in addition to analyzing the stock and ratio of this type of credit in the respective financial system, also providing a look at the economy and the real estate market. 

Bancos Destaque Notícia Homepage Economia
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