NPE market down 10% yoy
Update on NPE by Cribis Credit Management
The latest edition of the CRIBIS Credit Management NPE Observatory reveals significant developments in the Non-Performing Exposures (NPE) market throughout 2023. The research was produced in collaboration with Credit Village
Despite a challenging economic environment characterized by low national growth, high inflation, restrictive European monetary policies, a contracting real estate market, and increased financing costs, the NPE sector has shown resilience and adaptability.
Decrease in Bank NPE Stock:
The total bank NPE stock decreased by 9.9% in 2023, settling at €50.2 billion, continuing a positive trend for the financial system.
In contrast, secondary market transactions more than doubled, reaching €16.2 billion, now accounting for over 50% of total NPL transactions. This surge is attributed to a stagnant primary market, low default rates, and limited new NPL flows, driving the focus towards reselling portfolios.
NPE Market
On average over the past 5 years, the volume of transactions has decreased by 10%. In addition, trends in monthly transactions and collateral types are confirmed. In fact, at the end of 2023, a decrease in total transaction volume of about 3 billion euros was detected, thus recording transactions of about 31 billion euros. The volume is attributable to transactions related to NPL portfolios for 77 percent, and only 23 percent to UTPs, i.e., those loans that are not yet in default but are unlikely to be recovered.
At the same time, the value of UTP transactions is nonetheless on the rise, marking a +17% increase over 2022; this confirms that investors are shifting their interest to this category of loans.
Riskier industry sectors
In 2023, the focus shift toward Stage 2 and UTP credits continued. Regarding loans classified as Stage 2 (i.e., those loans that have experienced a significant increase in risk since initial recognition), the largest percentage of this exposure can be linked to corporations, which remains stable compared to 2022, standing at 71 percent of total loans.
The riskiest manufacturing sectors turn out to be Construction and Infrastructure, slightly worse than in 2022 (23.4 percent of exposures), along with Services (20 percent of total exposures), Logistics and Food & Beverage, which turn out to be the most under-pressed sectors, an analysis also confirmed by the most recent findings on late payment trade.
Compared to 2022, Agriculture appears among the highest-risk sectors recording a 9.5 percent stage 2 exposure. This sector is one of those that has suffered most from the economic effects of the pandemic, rising energy and commodity prices, and increasing its indebtedness. In addition, it faces major industry renovations due to new European Green Deal policies and the application of ESG criteria. In contrast, the sectors with a reduced share of exposure remain mining Oil&Gas, chemicals and pharmaceuticals.
Decreasing court proceedings
Analyzing the segment of non-performing loans, which register fewer and fewer flows from the primary banking market--and thus loans with increasingly high aging-it can be seen that it is characterized by recovery activities that are mainly concentrated in the judicial sphere. Summing up new bankruptcy proceedings, real estate, and movable executions circa 297,000 new proceedings were registered, registering a slight decrease from the previous year (-3.0%). Mostly decreasing are new executive proceedings, while bankruptcy proceedings are increasing (+7% compared to December 2022).
On the other hand, analyzing the backlog of court proceedings, December 2023 shows a steady decrease, as also observed for the year 2022. The stock of real estate procedures dropped by -23.7%, which is also the largest change recorded. The insolvency procedures decrease in their total (-3.4 percent), as does the stock of movable procedures, which recorded -7.3 percent.
Thus, over the past year, more court proceedings have been reported closed than open proceedings, a sign that the courts are continuing in their process of streamlining, in the wake of the many regulatory interventions in recent years, to ensure greater promptness in the handling of proceedings.
Main Conclusions
The NPE market continues to evolve, with significant shifts towards secondary market transactions and UTP credits. Despite economic challenges, the sector demonstrates resilience, supported by advancements in credit management practices and technology. The CRIBIS Credit Management NPE Observatory provides valuable insights into these trends, offering a comprehensive overview of the current state and future prospects of the NPE market.
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