European NPLs 2025 Outlook: Work in Progress

In this commentary, Morningstar DBRS analyses the 2025 outlook for public European nonperforming loan (NPL) securitisation transactions.

Key highlights include:
-- Public NPL securitisation volumes are at their lowest and expected to just timidly increase in 2025, aligned with the low, but on average, increasing NPL ratios. Current activity on this asset class is focused on the private market.
-- Workout activity of NPL transactions issued in the last years is mostly underway and market participants are looking into their portfolios to see how they can increase their performance and profitability.
-- Performance and ratings outlook are stable across our rated transactions.
-- Distressed loan ecosystem is shifting towards the better quality cashflowing NPLs, which include re-performing loans (RPL) and unlikely-to-pay loans, that are held by banks or in secondary market transactions. We expect RPL volumes to continue its increasing trend during 2025.

"The current landscape makes it difficult for NPL securitisations to return, as relevant volumes are not there and neither expected in 2025," said Alberto Cruces de la Rosa, Vice President, European NPL & RPL Ratings. "RPLs can be a win-win solution for many, both in the primary and secondary markets."