Non-performing loans in Portugal have one of the biggest reductions in Europe

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Both households and companies have seen significant reductions in the amount they have defaulted on in Portugal, says a study.

Non-performing loans in Europe fell by 1.3% between the summer of 2023 and the same period last year. And Portugal was one of the European countries with the best performance in reducing non-performing loans last year. The national financial system recorded 5.6 billion non-performing loans in the third quarter of 2023, 22% less than the 7.2 billion recorded in the same period of the previous year, concludes a study by Prime Yield. This reduction in the volume of non-performing loans in the Portuguese financial system also explains the fact that there are fewer assets of this type for sale. But the market should pick up in 2024

In European countries as a whole, there was a stock of non-performing loans (NPLs) of 362.7 billion euros in the third quarter of 2023, down 1.3% on the same period last year. And Portugal was one of the European Union countries that contributed most to this reduction. Only Greece, with a stock of NPLs of 8.3 billion euros, and Croatia (with a stock of NPLs of just under 1 billion euros), recorded bigger reductions than Portugal, with decreases of around 25%, concludes Prime Yield in its study “Keep an Eye on the NPL&REO Markets – Portugal, Spain, Greece and Brazil” sent to the newsrooms.

By taking a closer look at the dynamics of non-performingloans in Portugal, the study concludes that both households and companies have seen significant reductions in the amount they have defaulted on:

  • Companies continue to generate the largest volume of non-performing loans, 63% of the national total (around 3.5 billion euros). But they also recorded the biggest reduction in stock year-on-year (-24%). Of the amount of non-performing loans in companies, 46% relates to loans with real estate guarantees, or 1.6 billion euros.
  • Households account for 34% of the country’s non-performing loans, amounting to 1.9 billion euros, which fell by 17% year-on-year. It’s also clear to see that more than half of families’ non-performing loans are concentrated in housing loans (around 1,000 million euros).

NPL ratio in Portugal falls below 3% for the first time

Mortgage loans. Problem loans and toxic assets.
Mortgage loans. Problem loans and toxic assets.

Compared to the previous quarter, the amount of NPLs in Europe increased by 0.5%, largely due to the fact that more than half of the countries in the European Union increased or stabilized their stock of non-performing loans in quarterly terms. However, Portugal bucked this trend, with an 11% reduction in the volume of NPLs in quarterly terms.

The NPL ratio – which corresponds to the weight of non-performing loans over total loans granted – also evolved positively in Portugal last year, standing at 2.8% in the summer of 2023. This was even the first time that the NPL ratio in Portugal was below 3%. Even so, Portugal maintains one of the highest ratios in Europe, which stood at 1.8%.

“Last year’s progress continues the strong deleveraging of the post-financial crisis period, which is the result, on the one hand, of the greater solidity of the banking sector, which is now practicing more restrictive lending conditions and which has simultaneously strengthened provisioning levels. This has resulted in a reduction in the volume of non-performing loans held in the financial system, while there have been no new waves of defaults,” explains Francisco Virgolino, managing director of Prime Yield, quoted in the document. On the other hand, “this deleveraging also reflects the intense dynamics of sales of non-performing loan portfolios in recent years,” he adds.

Sale of non-performing loan portfolios falling – but should “perk up” in 2024

This reduction in the volume of non-performing loans in the Portuguese financial system also explains the fact that there are fewer assets of this type for sale on the market. “The universe of active portfolios for trading has been shrinking and transactional activity has been losing momentum,” analyzes Francisco Virgolino.

In Portugal, the sale of non-performing loan portfolios will have reached 1.4 billion euros in 2023, a decrease of 18% compared to the amount transacted in 2022 (which had already fallen by 55% compared to the previous year). It should be noted that the estimated value of sales of NPL port folios for 2023 only exceeds the approximately 1 billion euros in transactions recorded in 2020, a year in which activity practically came to a standstill due to the arrival of the pandemic, the same study points out.

What we feel today is that there are “fewer portfolios coming onto the market and those that do are smaller than before”, which leads to “a drop in the volumes of NPLs transacted”, says the director of Prime Yield. However, everything indicates that “NPL transactions in Portugal in 2024 should be buoyant, especially in the secondary market, where more opportunities should arise. At the same time, there will be greater activity in corporate servicer sales, following the international trend of consolidation in this segment,” he predicts.

Hervé Hubert
Hervé Hubert
Hervé Hubert is a 55-year-old writer and journalist based in Porto, Portugal. Born in France, he brings a unique blend of French and Portuguese perspectives to his work. Education Hervé studied Journalism and Literature at the University of Lyon in France. After completing his studies, he gained valuable experience working with various French media outlets (Portugal France also). Career He worked for several years as a journalist in France before making the move to Portugal. In Porto, he joined the Portugal Pulse team as a staff writer. Skills Hervé specializes in storytelling, investigative journalism, and cultural commentary. He has a flair for capturing complex issues in a relatable way. Personal Life He currently resides in Porto and enjoys the city's rich culture, from Fado music to Francesinha cuisine. Hervé continues to maintain strong ties to his French heritage, often traveling back to France for family visits and cultural exploration. With his unique background and diverse skill set, Hervé Hubert adds a layered, multicultural lens to every story he covers.

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