It’s been more than a decade since the start of the global financial crisis, when European banks were rocked by financial lingo that became part of the common vernacular: the non-performing loan. 

Back then, huge swathes of bank loans backed by real estate assets were overdue. Banks holding these NPLs were deemed at risk of collapse, in turn risking the collapse of the broader financial system. There was even a worry that NPLs could be a potential catalyst for the break-up of the euro currency bloc. 

But 10 years on, countries that were, at one point, epicenters of the crisis - Greece, Italy, Spain, Ireland – are firmly in the euro zone. So, are NPLs no longer in the picture?

“The NPL story in Europe is not quite over,” says Emilio Portes, EMEA head of Quantitative and Risk Management at JLL. “The region’s banks continue to hold non-performing loans on their books, with real estate still accounting for around 40 percent, or €314 billion, of the overall European NPL figure.” 

Over the past decade, regulatory pressures have forced big name banks to make progress, with Europe’s NPL total down from its peak €1.4 trillion in late 2014 to around €782.6 billion in mid-2018.

New rules from regulators across Europe required higher provisions – but in a shorter time frame – for losses on new NPLs. “The past decade has seen efforts made by European banks – but not in tandem,” Portes says. “There’s still some way to go.”

Italy has the largest NPL stock in Europe at €167.5 billion and is also one of the countries with the highest NPL ratios, at nearly three times the EU average. France, with €126.7 billion is second highest, while Spain and Greece respectively hold €91.8 billion and €82.3 billion. The four countries hold 59.8 percent of the EU’s total NPL stock.

As of early October, 92 deals totaling €67.9 billion had closed in Europe so far this year, according to a recent European NPLs report by Debtwire. The figure is some way off the record €200 billion seen in 2018.

“The pace of sales has slowed, and it could be argued that the best assets traded earlier in the cycle,” says Portes. “The quality and location of the remaining underlying assets often proves decisive.”