Spanish institutions have removed bad loans from their balance sheets, and sales are expected to increase in the coming months.

Spanish banks have reduced their non-performing loan (NPL) ratio below 3% for the first time since October 2008. According to financial sources, the European Central Bank (ECB) is pressuring institutions to remain below this threshold, which has driven an increase in the sale of portfolios of doubtful or failed loans (non-performing loans, or NPLs). As of June, Spanish banks reported an NPL ratio of 2.89%, according to data from the Bank of Spain—the lowest level since October 2008. To achieve this, they made a final sprint during the quarter, selling off portfolios and reducing the total volume of doubtful loans to €33.703 billion—€788 million less than in May, and €1.849 billion less than in March.

Although delinquency has long ceased to be a major concern for analysts and investors, the regulator remains closely focused and wants banks to take advantage of the current economic boom to minimize the volume of doubtful loans on their balance sheets. The most direct approach is selling portfolios to opportunistic funds, typically at a discount to the gross value of the loans. In these cases, banks draw from existing provisions or allocate new ones, recognizing losses but improving their balance sheets.

“In the first half of 2025, Spain’s NPL buy/sell market maintained a similar level of activity compared to the same period last year, dominated by unsecured portfolios and growth in the REO (Real Estate Owned) and PL/RPL (performing and reperforming loans, especially secured) segments. The increase in PL/RPL transactions indicates a growing appetite for lower-risk assets with higher recovery potential, likely tied to economic improvement and falling delinquency rates. Based on information from leading financial advisors—who are aware of projects launching after September—we expect a similar level of market activity in the second half of 2025,” explains Augusto Piñel, partner at Gómez-Acebo & Pombo.

Among the banks making strong efforts to reduce NPLs is Banco Santander, which ended June with a ratio of 2.91%, down from 2.99% in March and 3.05% in December. Sabadell also improved, dropping from 3.21% a year ago to 2.47%. Excluding TSB—which it sold to Santander (with the deal expected to close in 2025)—the figure fell from 3.8% to 2.81%. Unicaja improved from 2.9% to 2.2% over the year, a level similar to Bankinter’s 2.14%. BBVA lags behind, with a 2.9% ratio compared to 3% in December.

The rate at which new non-performing loans are appearing is slower than in the past, allowing banks to focus on removing existing doubtful loans from their balance sheets. Moreover, they are increasingly selling newer loans, gradually phasing out older ones—thereby reducing the discounts at which portfolios are sold. Additionally, more portfolios are being sold that contain loans not in default but that have experienced some payment issues (so-called reperforming loans, or RPLs). In the coming months, banks expect to continue this portfolio-selling strategy. In fact, several specialist advisors believe the trend will accelerate.

José Antonio Olavarrieta, partner at Deloitte, notes there is increasing activity with more transactions: “We expect a certain continuity in the types of portfolios being sold compared to the first half of the year, though with a higher number of deals, especially in the RPL and NPL segments (mainly unsecured and mortgage-backed),” he adds.

Greater Transparency

Ángel Pérez López, partner at Uría, highlights that Spain is still pending approval of the Draft Law on Credit Purchasers and Servicers. The country is delayed in transposing a European directive aimed at facilitating NPL sales and increasing transparency in the process. Brussels has already threatened to impose a fine.

“The regulation will be very important for the sale and management of NPLs. Once approved, this law—based on a directive from December 2021 and introduced in Spain with a draft bill in May 2024—will bring much greater certainty to the Spanish NPL market,” says Pérez López, who also notes more activity in RPLs than in NPLs. “Despite the decline in bank NPL ratios, Spain remains a relevant market, which has led to more selective strategies. Still, strong interest in high-yield assets suggests specialized investors remain active. Reperforming portfolios have shown steady momentum, with a slight uptick in interest due to their more controlled risk profile.”

The transposition of Directive 2021/2167/EU—which harmonizes the regulatory framework and strengthens protections—is expected to create a safer and more flexible market, driving increased institutional interest, summarizes Paloma Moreno de la Santa, team director at Baker McKenzie

Original story: El Confidencial | Author: Oscar Gimenez
Edition and translation: Prime Yield