NPL&REO News

NPL secondary market gain momentum in Portugal, says EU

Although its nonperforming loan (NPL) ratio remains high, over the last few months there has been a considerable reduction in Portugal’s bad debt stockpile «as the secondary market gains momentum», says the European Union (EU) on its «Country Report Portugal 2019».

«Portugal continues to correct its macroeconomic imbalances. Although all main indicators are moving in the right direction, public and private sector debt and foreign debt are still significantly above the benchmarks set», says the report, adding that «This continues to have a negative impact on the country’s external position, where the pace of adjustment is expected to slow down».

According to this document, Portugal has made some progress in increasing the quality of its financial system, namely by increasing the efficiency of insolvency and recovery proceedings, reducing impediments to the secondary market for the resale of nonperforming loans, and improving access to finance for businesses.

«While the ratio of non-performing loans remains high, there has been a considerable reduction as the secondary market gains momentum», says the same document, adding that «Portuguese banks have steadily decreased their stocks of non-performing loans and non-performing loan ratios in line with guidance from the Single Supervisory Mechanism» and that «lenders either work out bad debts internally, jointly through a servicing platform or increasingly put them up for sale on the secondary market».

So, adds the EU, «as the Portuguese property market is experiencing a strong period of growth, the secondary market for non-performing loans (often backed by real estate) is becoming increasingly competitive, with many foreign players actively looking to purchase nonperforming assets».

In 2017, the total value of NPL secondary market transactions reached about €2.3 billion, but given the strong pipeline of new deals, «this figure is set to be surpassed in 2018», forecasts the EU.

Highlighting that «the decline in nonperforming loans (or ‘bad’ loans) along with the improved profitability is reducing the balance of risks in the banking sector», the documents also notes that the «aggregate NPL fell by roughly one third over the last two years», thanks mainly to the NPL disposal programmes.

Story: Prime Yield
Photo:FreeImages.com/Armindo Caetano

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