In the non-performing loans arena, secondary deal activity has ramped up significantly due to maturing funds, the need to accelerate business plans, or investors reviewing their risk appetite given macro headwinds. There are several current defining factors influencing this, a boom of regulation to facilitate it, and technology and innovation playing an increasing role in the sector.

Michele Pedrotti, a director in Alvarez & Marsal's Portfolio Advisory Group in London, recently joined DDC'S 9th edition of the NPL Management Summit in Athens, Greece. The main takeaways of the session are summarised below:

Slow primary markets and a regulation boom

Despite the forecasts, for now there has been limited evidence of new generation of NPLs driven by the pandemic. Coupled with disposals of legacy assets continuing in markets like Greece and Italy, this means the primary market for European banks offloading bad debt has been relatively subdued in the last 12 months, as banks have made progress on their backlogs. Waning NPL disposals by banks, at least for now, is likely to propel the significance of the secondary market for NPLs.

This happens at a time when the secondary market may be buoyed by recent regulation. Recent proposals from the European Banking Authority (EBA) aim to standardise the requirements for the information that NPL sellers must provide to prospective buyers1. With this, the EBA is aiming to improve transparency in the secondary market, enable cross-country comparisons and reduce information asymmetries between sellers and buyers. Additionally, the European Commission recently published guidelines on best execution process regarding NPL transactions on the secondary markets2.

Drivers of sales

The appetite of investors to offload large chunks of their NPL investments will be an important driver of the trend to increased secondary market activity. As funds seek to repay their own investors, they are tasked with either putting their NPLs into new funds or offloading the assets. In particular, securitised NPL portfolios that come under the Hellenic Asset Protection Scheme (HAPs) have been performing poorly, and servicers will aim to accelerate cash collections by selling pieces of those loans, subsets of those loans as they try and recoup.

Funds have come under additional pressure due to this, as returns on loan books acquired prior to the pandemic have likely been negatively affected by the volatility of the last two years. Court processes, for example, were postponed, and specialists with the skill to drive rehabilitation of loans were in short supply.

There have been many straight sales in the last year, which is likely to be where the secondary market will evolve. There is an expectation to see secondary sales in Greece driven by an acceleration of business plans from HAPS securitisations, and in Italy the same from Guarantee on Securitisation of Bank Non Performing Loans (GACS) scheme. Both of these markets will see funds repositioning their investments and therefore selling particular types of asset, or even funds exiting regional markets altogether.

Reperforming loans

In an improving post-pandemic economic environment, some NPLs will also have an opportunity to become performing loans once again. Banks that have disposed of such loans in the past, may wish to bring them back into the banking system and rebuild potentially profitable relationships with the customers. Equally, the acquirer may be keen to sell, hoping to realise a return on their original investment.

Banking regulators yield considerable power here, however; they can hinder such transactions and restrict a bank's ability to forge new relationships with customers. Uncertainty about arrangements that could increase the risk of further spikes in NPLs – for example in the event of loans slipping once more – has led to restrictions on resales of such transactions.

Technology and data

Improvements in data and analytics has an important role in the NPL scene. Specialist investors are increasingly turning to sophisticated tools to get a more granular understanding of portfolio performance. New entrants from the fintech industry have helped raise the bar, creating new opportunities to generate value or offload underperforming assets.

The dividing up of larger portfolios for smaller sales will accelerate as a result. Availability of data for successful transactions is crucial, and the data now available is generally better than it was previously on primary trades. The has market evolved and is more mature, with a wider data set at disposal.


1. EBA consults on standardised information requirements to support sales of non-performing loans | European Banking Authority (

2. Communication on the guidelines for a best-execution process for sales of non-performing loans on secondary markets (

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