• The Spanish NPL/RPL market is evolving, with NPL ratios at their lowest since 2008 (3.43%) but still double the European average; transaction sizes are smaller, with increased focus on unsecured deals, residential mortgages, and emerging interest in RPLs.
• The real estate market remains strong, with Panellist 2 reporting 775,000 transactions in 2024 (38% above the 10-year average) and projecting 5% volume growth and 4% price increase for 2025, despite challenges such as tourism saturation and regional housing deficits.
• The servicing market faces profitability challenges due to smaller portfolio sizes and intense competition, leading to consolidation; meanwhile, regulatory changes, including the upcoming EU credit servicing directive, are expected to impact the industry.

• NPL ratio of Spanish banks at the end of 2024 is 3.43%, the lowest since 2008
• Still almost double the European average, indicating remaining opportunities
• Market volume estimated to be one-tenth of what it used to be, but still attracting attention

• Panellist 5 expects:
  • Continued activity in NPL sales, similar to the past one or two years
  • Unsecured deals likely in the second and third quarters
  • Residential mortgage NPLs to continue due to resilient residential market
  • Potential increase in SME portfolio sales, both granular and non-granular
• Panellist 2 noted:
  • More unsecured portfolios coming to market due to rising interest rates and deteriorating affordability ratios
  • Secured NPL ratio (mortgages for properties) around 2.4%, 40% below the last 10-year average

• Panellist 2 highlighted:
  • Smaller transaction sizes: In 2024, only one deal over €500 million, three deals over €200 million, and 20 deals between €10-100 million
  • New type of investor emerging: Those without local infrastructure, needing local partners and experts
• Panellist 1 mentioned:
  • Transactions of €500-600 million now considered very large
  • Examples of recent deals: Peridot (€100 million), Oxygen by Caixa (just under €600 million)
  • Increasing interest in RPLs, with Saiara and Scrabble currently in the market
• Panellist 4 noted:
  • No expectation of huge transactions in the near future
  • Banks likely to launch smaller portfolios instead of large ones to increase competition

• Panellist 3 explained:
  • RPL investors differ from typical NPL/REO investors due to different infrastructure requirements
  • RPLs require more complex valuation and cash flow projections
  • NPL investors need to build specific infrastructure before investing in RPLs
  • RPLs offer good risk-return profile: higher returns than performing loans with less uncertainty than NPLs
• Panellist 4 mentioned:
  • Some joint ventures forming between NPL and RPL investors to manage different aspects of the portfolios

• Panellist 4 highlighted three main challenges:
  • Increased competition due to lack of NPL product, putting pressure on prices
  • Inflation risks and potential interest rate increases, which could lead to early repayments or loans becoming NPLs
  • Regulatory changes in Spain, such as the upcoming efficiency law, making loan management more difficult
• Panellist 1 added:
  • Need for detailed information on historic payments and bank policies for making loans re-performing
  • Importance of having NPL management capacity, as 15-20% of RPLs may become non-performing

• Panellist 5 noted:
  • Minimum portfolio size of €200-250 million typically needed for securitization
  • Some investors building larger pools from multiple smaller portfolios to reach securitization threshold
  • Banks generally selling portfolios of €300-500 million due to internal impacts on P&L, risks, and LGD
  • Smaller banks may only be able to sell portfolios of €90-100 million
• Panellist 6:
  • Complexity of RPL securitizations due to potential for quick transition to non-performing status
  • Need for tranching to provide sufficient cushion for first losses
  • Many investors opting for international securitizations due to complex regulatory process in Spain

• Panellist 2 provided a detailed overview:
  • Extended positive cycle beyond the typical 8-year pattern
  • 2024 saw 775,000 transactions, 38% above the 10-year average and 12% more than the previous year
  • Average residential price reached €1,970 per square meter, 21% above the 10-year average and 7% higher than the previous year
  • Positive factors: housing deficit (300,000 units), strong tourism (100 million tourists annually)
  • Challenges: tourism saturation, regional nature of housing deficit, difficulties in developing new land in high-demand areas
  • Projections for 2025: 5% growth in volume and 4% increase in prices expected

• Panellist 1 outlined key requirements:
  • Need for efficient systems to manage early-stage delinquencies (e.g., dialers, SMS systems)
  • Adherence to bank policies for loan management
  • Technological challenges in managing RPLs effectively
• Panellist 4 added:
• Profitability challenges for servicers managing smaller portfolios (e.g., €600 million) due to fixed costs and staffing requirements

• Panellist 4 confirmed overcapacity in the sector:
  • Reduced volume of NPLs leading to excess capacity among servicers
  • Several companies undergoing sale processes, mergers, or considering listing
  • Need for concentration to remain competitive, especially when bidding for bank contracts
  • Decreasing margins due to intense competition for contracts
• Panellist 1 noted:
  • Service expectations remain high or are increasing despite margin pressure
  • Some investors seeking specialized servicers that can add significant value rather than the largest providers

• Panellist 3 explained the lack of a robust secondary market:
  • Investors holding portfolios to maximize value, especially if still generating cash or backed by appreciating real estate
  • Pricing discrepancy between buyers and sellers due to differing expectations and market uncertainties
  • More secondary market activity seen in smaller deals, particularly from funds exiting the NPL strategy
• Panellist 5 added:
  • Gap in price expectations, more pronounced for secured secondary trades
  • Unsecured market seeing more closures due to aligned expectations between buyers and sellers

• Panellist 6 mentioned the upcoming implementation of the EU credit servicing directive:
  • Will make servicing a regulated activity in Spain, overseen by the Bank of Spain
  • Expected to facilitate further European integration in the servicing market
  • Draft bill already out in Spain
• Panellist 1 noted:
  • Generally positive view on the directive's implementation
  • Some concerns about specific points within the directive

Note/Disclaimer: all comments above were prepared with the assistance of an AI summry tool used at the event.