January 17, 2022 4:34 pm

European NPL 2021 review: Greece, Spain and Italy lead market recovery

European non-performing loan (NPL) activity returned to pre-pandemic levels in 2021, led by deleveraging in Greece, Italy and Spain. Data published by React News indicated €114.2 billion in disposals over 2021. However, much of the activity related to pre-pandemic exposures. European banks still confounded expectations that pandemic disruption would materially deteriorate asset quality and trigger a new wave of Covid-era NPLs.

Banks capital buffers, liquidity and asset quality all improved last year, according to the European Banking Authority’s (EBA) 2021 risk assessment published in December, except on loans secured by pandemic-sensitive sectors. Sweeping fiscal and monetary support supported NPL ratios, while banks were resilient going into the pandemic. Measures including workers’ protection schemes, government-guaranteed loans and repayment moratoria offset the disruption to borrowers’ cash flows caused by the pandemic. The long reach of protective policies, which included the suspension of creditors’ right to file for borrower insolvency, together with sustained low-interest rates and national NPL securitisation schemes, saw European bank NPL ratios fall to 2.1% in 2021, according to the EBA. NPLs declined 5% to €419 billion in 2021. While the sectors more vulnerable to Covid-related measures had higher NPL levels, there was also signs of improvement towards the end of last year.

The full effects of the pandemic on European bank balance sheets, and the implications for future European NPL activity, is still to come into full view. This article reviews European NPL activity in 2021, focusing on the most active markets and regions.


Greece was the most active market within the region with closed deals and an ongoing NPL pipeline worth €45.9 billion, according to data by Deloitte. The transactions were driven by pre-pandemic deleveraging through the country’s highly-successful NPL distribution model, the Hercules Asset Protection Scheme (HAPS). Under HAPS, the Greek State guarantees the securitised senior notes while private investors buy the mezzanine and junior bonds. In total, NPLs among Greek banks declined from 48.5% in December 2016 to almost 10%, at the end of 2021, virtually returning the sector to normalcy.

Milestone deals included National Bank of Greece’s €6 billion Project Frontier NPL to Bain Capital Credit, Fortress Investment Group and doValue Greece; Piraeus Bank’s €7.2 billion Sunrise I, comprised of 205,000 NPLs; and Alpha Bank’s €10.8 billion Project Galaxy NPL, with Davidson Kempner buying 51% of the mezzanine and junior notes. In the broader central, eastern and south-eastern Europe (CESEE) market, the impact of Covid-19 on new NPLs has been limited. Reduced selling pressure was due to banks’ robust provisioning levels and the conclusion of the bulk of distressed restructuring.


Government support measures curbed credit deterioration and insulated Italian banks from increased NPE exposures. As a result, Italian banks have only been marginally impacted by Covid-19 to date. However, the pandemic has caused NPL activity to fall to the lowest levels since 2008. Italian NPL transactions are forecast to reach around €32.2 billion in 2021, according to PwC data. This tally comprises €20.2 billion in NPLs and unlikely-to-pay (UtP) transactions and includes up to €12 billion worth of ongoing deals. In a separate forecast, Banca Ifis estimates around €34 billion in NPLs were completed last year. This compares to around €40 billion in both 2019 and 2020, which was still less than half 2018’s market peak of €84.1 billion in NPL sales.

In 2021, the gross value of banks’ UtPs reached €49 billion, which eclipsed traditional NPLs, at €45 billion, marking a maturity in the UtP classification within the sector. Overall, the total stock of Italian NPEs still to be worked out, including exposures in investors’ portfolios, sits at around €350 billion. The figure represents a visible future transaction pipeline across asset sales, NPLs and secondary transactions.

Four GACS NPL securitisations – with a combined gross balance of €8.1 billion – were completed in 2021, led by UniCredit’s securitisation of a €2.2 billion NPL portfolio to Olympia SPV srl. In addition, three deals obtained the public guarantee: the €1.5 billion Project Rockets, comprised of NPLs to Banco BPM; the €1.3 billion Iccrea Banca NPL securitisation of a real estate lease portfolio; and Intesa Sanpaolo and BPER’s €3.1 billion NPL securitization. In the five years that the GACS scheme has operated, Italian banks have closed 39 GACS NPL deals worth approximately €96 billion, according to PwC data.

In the secondary market, volumes reached €5 billion, driven by Cerberus’ €2.8 billion portfolio sale to Banca Ifis. Illimity Bank also closed two transactions for a combined €250 million. Finally, doValue, the Southern European loan servicer, was selected as a reference player for Unicredit and ICCREA GACS transactions. The firm achieved a 70% market share in Italian GACS mandates in 2021.


Spain NPL activity grew modestly over the year, albeit below market expectations. Notable deals included CaixaBank’s €576m residential NPL portfolio comprising 4,500 properties, and three NPL portfolios by Banco Santander: a €600m Project Talos NPL portfolio to Marathon Asset Management for a reported €100m; and two Spanish hotel portfolios for €136m and €70m, respectively. Another portfolio, the €600m residential and SME loan-backed Project Titan NPL, is ongoing.

Two explanations for the relatively muted activity levels come to mind. First, banks were spared higher defaults – in the retail, hospitality tourism and sectors – after the expiry of the moratorium on loan repayments early in 2021 coincided with a strong recovery in the economy. Second, banks were sufficiently-capitalised to extend covenant waivers to borrowers. Banks were motivated by the assumption that the trading environment for pandemic-sensitive sectors, like hotels, would markedly improve in 2022. However, if the Omicron variant delays or thwarts near-term better market conditions, some of these NPLs will have been delayed and not prevented. Spain still has one of the largest stockpiles of NPLs in Europe.


German NPL ratios remains one of the lowest throughout the European Union. German banks were carrying €31 billion in NPLs (ratio: 1.9%) at the end of Q3 2021, according to the EBA. However, only €1.8 billion were SME (ratio: 4.8%) and €0.8 billion (ratio: 2.1%) were commercial real estate exposures; both counts ticked down over the second half of last year.

UK and Ireland

NPL activity has been quiet for several years in the UK. One exception was NatWest’s £400 million Project Mercatus shopping centre NPL sale to a consortium of investors, including Attestor, Octane Capital Partners and Ellandi. The deal was a catalyst for broader retail transactional activity, which underlines the utility of NPLs as a tool to reset market pricing. Subsequently, Ulster Bank agreed to sell its entire €4.2bn performing corporate and commercial loan book to AIB for close to par, as the bank exits Ireland, which sparked a competition investigation. In November, AIB agreed to sell its UK £600 million small business loan book to Allica Bank.

This post was written by James Wallace

James Wallace is an editor, journalist, researcher and corporate writer on economics, geopolitics, finance, real estate, private equity, aviation, infrastructure and technology. He co-founded CoStar News in the UK in April 2011, and now works for multiple media organisations and corporations across writing, research, marketing/PR and consulting. He is an aspiring psychologist.


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