Special Report: 2021 European NPL Outlook

How data-driven digital technology will help manage the tide


This 35 page Special Report is sponsored by Qualco, led by Antonio Curia, in association with DDC Financial Group.





GLOBAL DEBT


The huge rise in corporate leverage combined with an uncertain economic outlook increases the chances that debts will not be repaid in full or on time. Defaults have already picked up sharply. The global debt load comprised of both private and public debt, rose by $24 trillion last year, making up over a quarter of the $88 trillion rise over the past decade, now stands above $281 trillion. Almost no one expects the economy to have fully recovered by the end of 2021, with some estimates indicating that global debt could exceed $360 trillion by 2030.


PRIVATE DEBT


Private Debt continues to attract strong demand from global investors who have essentially gone looking for what they cannot find in public markets to meet their evolving needs. The European demand for private capital has extended to lending and, in this environment, European private credit managers and their investors, have demonstrated their commitment and expect to provide businesses with over $110 billion of new capital in 2021.


EUROPEAN NON-PERFORMING LOANS & REGULATIONS


In an adverse scenario, the ECB has estimated that the amount of non-performing loans (NPLs) in the Euro area might reach €1.4 trillion by the end of 2022, while the Eurozone NPL ratio is expected to increase from 3.1% in Q4 2019 to 4.7%-5.4% by the end of 2021. This would put between €255-380 billion of additional NPLs on Eurozone banks’ balance sheets by the end of 2021.


On December 16th 2020, the European Commission on Coronavirus response issued the guideline “Tackling non-performing loans (NPLs) to enable banks to support EU households and businesses” in which it identified only 21 of the 113 significant institutions were able to forecast the level their NPLs will have reached by the end of 2021. The guideline concludes that “history has shown us that it is best to tackle NPLs early and with decisive action, while ensuring robust consumer protection, to allow the banking sector to play its role in supporting the economic recovery”.




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