NPLs in Spain, Portugal and Latin America: more selective deals and increasing activity in secondary markets and debt servicing industry

Latin America, Portugal and Spain  - 

Debt portfolio (NPL) and toxic asset (REO) transactions: update at November 2023

In the first three quarters of 2023, we saw investors adopting a more selective and specialized approach in their NPL investments, increasing their appetite for unlikely-to-pay (UTP) and reperforming loans (RPLs).

Other market niches that are catching investors’ attention have been prompted by the worldwide fall in commercial real estate prices, as well as new opportunities in residential real estate owned (REO) properties and single-name loans (defaulted loans to individual borrowers).

The financial situation and political tensions in a few Latin American countries are compelling financial institutions to study ways to speed up their deleveraging. It is key for investors to know what types of assets are going to come to market, who are the main sellers and local purchasers and what infrastructure of advisors, local partners and intermediaries exists in the country.

In Europe, the final data templates to be used by financial institutions selling NPLs to provide information to purchasers have now been published. The templates have been in effect since October 19, 2023, although the European directive imposing their use has yet to be transposed in all member states (Spain and Portugal are about to do so).

Global NPL ratio figures in 2022

According to the latest data published by the World Bank (2022), among the jurisdictions we cover in this publication, Peru in 2022 had the highest ratio of nonperforming loans to total gross loans (4.1%), followed by Spain (3.1%), Colombia (2.5%) and Mexico (2.1%). The World Bank has not published the indicators for Chile and Portugal.

Signs of credit deterioration and increase in nonperforming loans in Europe

According to Eurostat there are indications of deterioration in loan assets, mainly related to the number of bankruptcies in the European Union. This number rose considerably in the fourth quarter of 2022 (+26.8% compared with the previous quarter). In annual terms (Q2022-Q2021), the number of bankruptcies increased in the transport and storage sectors (+72.2%); accommodation and food services (+39.4%) and education, health and social activities (+29.5%). Alongside this, high inflation is also contributing to a deterioration of credit. The most recent models (June 2023), based on forecasts drawn up from data published by the International Monetary Fund, confirm that a sustained inflation rate may increase NPL ratios substantially even without entailing a severe recession.

Increase in corporate transactions in the servicers’ sector

In Spain in particular we are seeing a considerable amount of activity around servicers. Following the sale, in March 2023, of Finsolutia, servicer to British fund Pollen Street, in May 2023, Intrum completed the purchase of all the capital of Haya Real Estate, creating a team of more than 2,000 professionals managing over 200,000 real estate assets and €60 billion million in debt under management. Before summer 2023, KKR closed a mandate for the sale of its servicer Hipoges, for an indicative price of €200 million, which has not yet been completed. At the beginning of September 2023 it was released that Lone Star had also put its servicer Servihabitat up for sale, with the intention of selling off the whole company. It recently came to light that Silver Lake is interested in selling its servicer Lexer (acquired in 2021 for €150 million).

New EBA data templates for the sale of nonperforming loans

Directive (EU) 2021/2167 of 24 November 2021 on credit servicers and credit purchasers set out an obligation for financial institutions selling nonperforming loans to use templates (the EBA data templates).

The use of EBA data templates to provide information to purchasers will be mandatory for overdue loans that were originated on or after July 1, 2018 and became nonperforming before December 28, 2022.

In December 2022, the European Banking Authority (EBA) published its draft Implementing Technical Standards (ITS) on NPL transaction data templates. Recently, on September 26, 2023, the ITS were published in the Official Journal of the European Union. The final templates, in effect since October 19, 2023, include 129 data fields, of which 69 are mandatory for sellers.

Some analysts (NPL Markets) have commented that transferring data to the new templates is relatively straightforward using existing technology, although financial institutions are expected to find it challenging to provide all mandatory data fields immediately to purchasers.

So, what main trends are already visible in the main LatAm, Spanish and Portuguese markets? What transactions are being performed in these jurisdictions and which have yet to come?

Garrigues is pleased to share our view of the main trends in these debt markets, drawing from our on-the-ground network of offices in Chile, Colombia, Spain, Mexico, Peru and Portugal.




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