DBRS released an analysis on the European market for securitizing non-performing loans (NPL), noting a decrease in activity in 2023 but anticipating a consistent outlook for 2024. Greece has extended its state guarantees, similar measures might be implemented in places like San Marino, while such guarantees have ceased in Italy, where they were first introduced in 2016.
The market for securitizing NPLs in Europe experienced a significant slowdown in 2023. This downturn was evident since no transactions, paused following the European Central Bank’s hike in interest rates, recommenced within the year. Apart from a few issuances in the last part of the year, the market activity was at its lowest since the reactivation in 2016 following the major financial crisis.
Looking ahead to 2024, DBRS predicts a consistent rating outlook across various European regions, with most maintaining stable credit outlooks. However, a negative credit outlook persists for Spain and Italy, where DBRS has observed challenges in some rated transactions over recent years, including delayed recoveries and occasionally reduced total recovery estimates.
A key aspect for the European NPL sector in 2024 is Greece’s recent extension of its Hellenic Asset Protection Scheme (HAPS), authorized on December 4, 2023. This scheme, guaranteeing EUR 2 billion of securitized bonds and set to expire on December 31, 2024 (unless extended), is expected to be utilized by numerous Greek banks, including major ones like Alpha Bank, Eurobank, National Bank of Greece, and Piraeus Bank, for securitizing their NPL inventories.
Market consensus suggests that Italy’s Garanzia Cartolarizzazione Sofferenze (GACS) will not be renewed this year, leading to modest expectations for Italian NPL securitization volumes in 2024. Conversely, other regions might introduce new initiatives akin to Italy’s GACS and Greece’s HAPS, as exemplified last year in San Marino.
In other traditional European markets, including Cyprus, Ireland, Portugal, Spain, and the UK, Morningstar DBRS anticipates public senior note issuances in 2024 to align with the levels seen in the post-pandemic, pre-Ukraine conflict era (2021-2022), around EUR 200 to 400 million annually, thanks to stabilizing interest rates. The year may also witness the securitization of smaller NPL portfolios, reperforming loan portfolios potentially sold from existing securitizations, and other unique transactions involving nonperforming and unlikely-to-pay loans.