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