Spain's Foreclosure and Bankruptcy Landscape: Stability on the Surface, Pressure Beneath

Following our commentary "Spain Foreclosures and Bankruptcies: Is the System Ready for an Uptick?" published two years ago, the credit landscape has undergone significant shifts. This commentary will update the reader on the latest statistics around foreclosures and bankruptcies in Spain and provide insights on the drivers and potential implications of current trends, as well as their impact on nonperforming loan (NPL) transactions.

Key highlights include the following:
-- The total number of foreclosures initiated per quarter remains low, but the average duration of these proceedings is still very high.
-- Courts face structural delays in foreclosure cases, which may be exacerbated if default volumes accelerate.
-- Labour market resilience and economic policies may limit foreclosure spike risk.
-- Personal bankruptcies, mostly involving no-asset cases, have surged sharply since 2022 following legal reforms that enhanced Spain's second-chance framework.
-- The overall number of company bankruptcies remains below its peak in 2013, but some regions are experiencing a resurgence in cases.

"In the current environment of gradual economic expansion, stabilised unemployment, and constrained foreclosure growth, NPL portfolios' performance should not be too negatively affected", said Jorge Aranda Rodríguez, Senior Analyst, European Nonperforming & Reperforming Loan Ratings. "However, while the legal and macro context has not triggered generalised underperformance in the Spanish NPL market so far, the asset class remains vulnerable."