May 27, 2024 2:28 pm

Review on European Commission´s survey on NPL markets

  • 71% of respondents expect slightly higher levels of non-performing “Stage 3” loans over the next two years. Weak sectors include corporate lending, CRE and unsecured consumer loans
  • 68% of respondents consider the NPL market “sufficiently developed” although transaction volume is low
  • 75% of respondents cite international debt investors as largest NPL buyers; 30% cited domestic distressed debt investors


Frankfurt – May 27, 2024: Almost three-quarters of European non-performing loan (NPL) market participants forecast a pickup in underperforming “Stage 2” loans and “Stage 3” NPLs over the medium term, according to a just-published survey by the European Commission’s NPL Advisory Panel.

Approximately 71% of respondents expect slightly higher levels of non-performing “Stage 3” loans over the next two years, while 61% expect a slight increase in the stock of sub-performing “Stage 2” loans. Corporate lending, commercial real estate (CRE), and unsecured consumer loans sectors were considered the likely weakest sectors.


Chart 1: NPLs expected to rise from 2025

The purpose of the survey was to gather an overview of market participants perspective of the NPL secondary market in the European Union, including barriers to development, the depth of the investor universe and transactional activity, as well as on consumer protection-related factors.


Chart 2: Respondents view on the sectors with the most likely increase in NPL levels                 

In terms of sectors, respondents expected an increase in NPL levels in: corporate/SME lending (70% of responses); CRE (57%); unsecured consumer loans (56%); and credit cards (53%). On the contrary, asset-back finance and auto loans were the sectors least expected to see an increase in NPL levels.


NPL market sufficiently developed but deal flow thin

More than two-thirds of survey respondents (68%) consider the NPL market in the EU sufficiently developed although transaction volume is low. This is likely linked to the overall low level of NPLs in the EU. Around 17% of respondents suggested the current limited stock of NPL deal activity was due to relative underdevelopment of the NPL market.


Chart 3: Respondents’ view on activity levels in NPL secondary markets

Traded assets

The types of assets most frequently traded in NPL secondary markets are: residential real estate (RRE; 57%); unsecured corporate/SME lending (49%); secured corporate/SME lending (43%); and CRE (33%). Some respondents mentioned that for several types of assets – such as unsecured consumer finance – the secondary market is almost non-existent. There was notable discrepancy between market participants. Banks and sell-side respondents reported much more unsecured consumer loan trades (42%), compared to servicers and buy-side respondents (24%). Elsewhere, the buy-side respondents reported more CRE trades (39%) compared to the sell-side (29%).


Chart 4: Type of assets traded

Top NPL buyers

International debt investors were cited by three-quarters (75%) of survey respondents as the largest NPL buyers in the EU, followed by domestic distressed debt investors (30%). National asset management companies were also mentioned in two countries. The presence of private equity and hedge funds were detected in a limited number of countries, mostly that presented higher levels of legacy NPLs.


Chart 5: Respondents’ opinion about top NPL buyers in EU markets

On the topic of trading platforms, the findings implied they are only active in a handful of countries. Survey responses suggested market participants mostly rely on bilateral interactions (between distressed debt investors and sell side), or other brokers and intermediaries. Some respondents mentioned that transactions that take place through trading platform are residual, while others reported that there is no active trading platform in their country. “The proliferation of secondary marketplaces, like Debitos, has accelerated more within developed markets with a minimum volume,” explained Timur Peters, founder of Debitos. “This reflects where the deal flow is greatest. Over time, we expect Debitos to expand into smaller markets, as liquidity and deal flow picks up.”

The survey was conducted between March and April, collated 90 responses, across a broad range of subsectors and markets, including 34% of responses from banking, insurance, leasing and factoring sectors, 37% of responses received from servicers and 10% received from purchasers. Geographic coverage was broad with responses from 22 EU Member States, led by Spain (15), Germany (9) and Italy (8). Responses from Norway, Switzerland and the UK were also collected.


Peters added: “The survey findings suggest a pick-up in Stage 2 and 3 loans from next year, which if correct will offset market participants concerns of low transactional activity over the past years. Our own expectations align with these findings. We expect increased deal flow over the coming two years in our select markets, including Italy, Germany, Greece and Spain.”


About Debitos

Debitos is the leading loan transaction platform in Europe that enables banks, funds and companies to sell their credit exposures on the market through its open and transparent auction-based online transaction platform.

The platform leverages on the digitalization of the entire sale process and can reduce the expected disposal timing to 3-8 weeks compared to 3-6 months of the traditional process. Debitos was founded in Frankfurt in 2010 and has since successfully transacted more than 2.635 m debts in 16 countries. By now, more than 2,000 investors from all over Europe have registered with Debitos.



This post was written by Timur Peters

Timur Peters is the founder of Debitos GmbH. He holds a diploma in finance and law. He has more than 10 years’ experience in the range of finance.
Before Founding Debitos Timur Peters was responsible in the distribution of Software for Banks and Financial Institutions for Comarch for the D/A/CH Region. Next to this he has worked for several years as a self employed Project Consultant in the area of Financing of Litigation cases, Peer2-Peer Credit Marketplaces and other online projects for financial institutions.


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