COVID-19 pushes up European NPL levels for the first time in years

Following years of falling volumes, European NPLs started rising due to the impact from the COVID-19 pandemic, according to the new Debtwire European NPLs 3Q20 report presented at Debtwire Week.

The total volume of NPLs in the EU/EEA countries was EUR 526.3bn at the end of the second quarter, up from a record low of EUR 522.8bn at the end of March, according to the European Banking Authority’s (EBA) quarterly Risk Dashboard.

European banks had mostly achieved cleaning up their balance sheets since the NPLs peaked at EUR 1.2trn in 2014.

The COVID-19 crisis has hit the European NPL market this year. Most deals were frozen during the lockdowns and sales restarted only slowly over the summer in some countries. The first three quarters of 2020 have been the least active since 2015, with only EUR 39.2bn of deals completed across Europe.

The activity seen so far has been extremely concentrated, with EUR 25.1bn or 64% of the total closed deals so far in Italy. Adding EUR 9.1bn closed in Greece, the two countries together account for 87.2% of the total European activity so far.

Italian-state-owned AMC AMCO was involved in EUR 11bn or 28% of the volume of deals closed so far. The bad bank has become the most active buyer in Europe replacing, at least momentarily, private equity giants which haven’t closed any NPL deals so far this year.

Out of EUR 39.2bn deals closed so far this year, EUR 10bn or 25.5% were securitisation with state guarantees within the Greek Hercules Asset Protection Scheme (HAPS) and Italian GACS schemes — EUR 7.5bn and EUR 2.5bn respectively — according to the Debtwire NPL Database.

“Diluting in several years the capital absorption from NPLs disposal losses, coupled with the advantages brought by the Italian State’s GACS guarantee scheme, has been the real catalyst for the massive deleverage of the Italian banking system. Hope European regulatory Authorities and Governments will not forget those positive effects on the real economy,” said Riccardo Serrini, CEO Prelios Group.

Among EUR 70.9bn currently live deals tracked by the database, EUR 31.7bn or 44.7% plan to use the schemes — EUR 23.6bn in Greece and EUR 8.1bn in Italy.

“National AMCs have been a powerful tool across Europe to address the peak NPLs after the 2008 financial crisis. Securitisation with state guarantees have proved to be strong weapons to dispose of NPLs even in the midst of the current crisis,” said Alessia Pirolo, Head of NPL Coverage, Debtwire.