DBRS talks of
a prolonged period of inflation and high mortgage rates that could put pressure
on the system, especially given the vast majority of variable rate mortgages in
the Portuguese economy.
DBRS
Morningstar classifies the Collateral Performance Outlook for 2024 (the real
guarantees attached to defaulted loans) in Portugal as “Stable”. The
2024 Credit Rating Outlook is also classified as “Stable”.
Similarly,
the Portuguese Non-Performing Loans (NPL) securitisations rated by DBRS
performed well, with all the notes rated by the agency (relating to four
operations) having been repaid in full.
DBRS points
to potential risks in future transactions. These include the slowdown in
residential property prices in Portugal following the rise in interest rates.
Property prices still increased by 8.7% in the 2nd quarter of 2023 compared to
the previous year, compared to 13.2% in
the 2nd quarter of 2022, it points out.
DBRS speaks
of a prolonged period of inflation and high mortgage rates that could put the
system under pressure, especially given the vast majority of variable rate
mortgages in the Portuguese economy.
Vulnerabilities
are becoming visible, with new measures introduced in September 2023 to support
households facing greater financial pressure, says DBRS.
“As
emphasised in our commentary on foreclosures and bankruptcies, longer legal
deadlines and the backlog of foreclosure and bankruptcy proceedings could
affect performance and place increased importance on the manager’s ability to
achieve out-of-court solutions,” the analysis reads.
Regarding the
European NPL securitisation market, DBRS says that “in terms of credit
performance, the situation last year leaned more towards the negative, but
still without any obvious general trend”.
“Most of
the well-performing transactions, such as Irish, Portuguese, more recently
Italian and UK, have continued to deleverage, with a healthy level of loan
recoveries and note repayments; however, older Italian and Spanish NPL
securitisations continue to struggle to reverse their past performance,”
says DBRS in its European NPLs 2024 Outlook.
The European
NPL market slowed down significantly in 2023, says DBRS, which adds that none
of the transactions suspended after the European Central Bank began raising
interest rates resumed during the year.
“With
the exception of some concentrated issuance in the final weeks of the year,
activity in this asset class was the quietest since issuance resumed in 2016
following the Great Financial Crisis,” says DBRS.
The analysis
focuses on Asset-backed Commercial Paper, Residential Mortgage-Backed Security,
and Auto.
NPL
securitisations outside government asset protection programmes, seen in
jurisdictions such as Cyprus, Ireland, Portugal, Spain and the UK, depend on
European securitisation market conditions. Here DBRS Morningstar expects
“public issuance of senior notes during 2024 to be broadly in line with
what we saw during the post-pandemic, pre-Ukraine invasion period (2021-2022)
at 200 to 400 million euros per year, given that interest rates are now
stabilising”.
As in 2023,
the year could also see securitisations of smaller NPL portfolios,
re-performing loan portfolios (which have returned to performing status after
ceasing to be so) that can be sold from existing securitisations and other more
esoteric mixed asset class transactions involving NPL and loans with a low
probability of repayment.
For 2024, the
rating agency expects the rating outlook to remain stable in all jurisdictions
covered by the analysis, “with stable credit outlooks for most of
them”.
“We
maintain our negative credit outlook for Spain and Italy – the two
jurisdictions where we have seen difficulties in some of the transactions
assessed over the past few years, including in the face of prospects for
delayed recovery and, in some cases, a downwardly revised total recovery
amount.”
“An important factor to consider for the European NPL space in 2024 will be the recent renewal of Greece’s Hellenic Asset Protection Scheme (HAPS), which was approved on 4 December 2023 with a total guaranteed amount of €2bn of securitised bonds and a new expiry date of 31 December 2024 (unless extended by subsequent decree). We believe that many of the Greek banks – both systemic (Alpha Bank, Eurobank, National Bank of Greece and Piraeus Bank) and other non-systemic banks – will take advantage of this renewal and securitise some or all of their NPL stocks before the guarantee expires,” says DBRS.
Edition and translation: Prime Yield
Original Story: Jornal Económico | Maria Teixeira Alves
Photo: Bigstock Photo
