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European Nonperforming Loan Securitisations Performance - 2022 Update

This commentary analyses the performance of European nonperforming loan (NPL) transactions publicly rated by DBRS Morningstar. It is based on the latest available information provided by the servicers and identifies key trends across the Italian, Portuguese, Spanish, Irish, Cypriot and UK jurisdictions along with peculiarities observed at a transaction level based on deal-specific aspects. For each jurisdiction, the commentary provides a summary of the macroeconomic scenario and, for each transaction, an overview of the performance evolution and the updated business plan expectations from the servicers.

Summary highlights include:
-- Barring a few exceptions, the performance of European NPL transactions issued prior to the Coronavirus Disease (COVID-19) pandemic witnessed severe deterioration as the pandemic spread. Although the performance deterioration continued in 2021 and in the first half of 2022, it has been at a much slower pace, with a few transactions even reversing their downward trends during this period.
-- Transactions that closed after the pandemic started have generally displayed a very strong performance since closing and one of the driving factors behind this overperformance has been how servicers have adjusted their business plan expectations in a pandemic-like scenario.
-- Residential real estate values have experienced a recent increase in the jurisdictions relevant for European NPL securitisations.

“Although we have generally witnessed positive performance over the last 12-18 months, the current expectation of an economic slowdown, mainly driven by an inflationary environment and increasing interest rates, poses a risk to the short- and medium-term performance of DBRS Morningstar-rated NPL transactions” states Alberto Cruces de la Rosa, Vice President, European NPL at DBRS Morningstar.