European NPLs 2024 Outlook

The European NPL securitisation market slowed significantly in 2023: none of the transactions that were put on hold after the European Central Bank started increasing interest rates resumed during the year. Except for a handful of issuances concentrated in the final weeks of the year, activity in this asset class was the quietest since issuance restarted in 2016 after the Great Financial Crisis.

For 2024, we expect the ratings outlook to remain stable across all our jurisdictions, with stable credit outlooks for most of them. We maintain our negative credit outlook for Spain and Italy – the two jurisdictions where we have seen some of our rated transactions struggle during the past few years, including facing delayed recovery prospects and, in some cases, a revised lower total recovery amount.

An important factor to consider for the European NPL space in 2024 will be the recent renewal of the Greece’s Hellenic Asset Protection Scheme (HAPS), which was approved on 4 December 2023 with a total guaranteed amount of EUR 2 billion of securitised bonds and a new expiration date of 31 December 2024 (unless extended by a subsequent decree). We believe many of the Greek banks – both systemic (Alpha Bank, Eurobank, National Bank of Greece, and Piraeus Bank) and other nonsystemic banks – will take advantage of this renewal and securitise some or all of their remaining NPL stocks before the guarantee expires.

There is wide consensus among market participants that a renewal of the Italian Garanzia Cartolarizzazione Sofferenze (GACS) is not expected this year and, as such, expectations for 2024 Italian NPL issuance in terms of volumes remain low. Other jurisdictions may see introduction of new schemes similar to Italy’s GACS scheme and Greece’s HAPS, an example of which we saw last year in the Republic of San Marino.

For transactions in other traditional European jurisdictions (mainly Cyprus, Ireland, Portugal, Spain, and the UK), Morningstar DBRS expects public senior note issuances during the course of 2024 to be broadly in line with what we saw during the post-pandemic, pre-Ukraine invasion period (2021-2022) of EUR 200 to 400 million per year, given interest rates are stabilizing now. Like in 2023, the year may also see securitisations of smaller NPL portfolios, reperforming loan portfolios that may be sold out of existing securitisations, and other more esoteric mixed-asset-class transactions involving nonperforming loans and unlikely-to-pay loans.