Portugal’s banks slash stocks of Non-Performing Loans by over 75% in five years

Portugal’s financial institutions have managed to reduce their stock of Non-Performing Loans (NPLs) from €21Bn five years ago to just €5Bn today.

This is according to Nelson Rego, entrepreneur and property investment expert who says that currently 76% of European NPLs are concentrated in France, Spain, Germany and Italy while Portugal’s banks stand out for having offloaded the majority of their NPLs.

“In the last five years, Portugal has significantly reduced its stock of NPLs from €21Bn to €5Bn and in the residential real estate sector the fall in NPLs stood at 4.5% in 2024 with a balance of just €2Bn outstanding,” he said, whereas in Europe in general NPLs in the residential sector had risen by around 3%.

“We’re not seeing this upwards trend seen in Europe here in Portugal which has a much lower stock of debt than other European countries that we would be compared with”, he said.

This progress reflects a continuous offloading of debt and good risk management practices making Portugal a case study in the European market he added in a podcast with the magazine Magazine Imobiliário.

Nevertheless, the European Commission decided to take Portugal to the European Union Court of Justice for failing to carry across its directives on NPLs this year.

Portugal had until 29 December, 2023 to enact Directive 2021/2167. The Commission took Portugal to court for flaws in its legislation on the sale of Non-Performing Loans The legislation in question was important for families since the sale of mortgage default loans (NPLs) had been made without a specific legal framework in place.

Even so, the greater or lesser protection of individuals, especially when it comes to mortgage loans depends on the way in which the Portuguese Government adapts the EU directive to its domestic law.

When transposition is finally implemented, the effect of EU legislation will be reduced because of the massive sales of non-performing loans already carried out by banks operating in Portugal in recent years.

From 2013 to 2023 alone, banks “cleaned” more than €40Bn of Non-Performing Loans from their balance sheets, a process that continued in 2024.

Portugal is one of the seven member states that failed to transplant the EC directive to local legislation, along with Austria, Bulgaria, Spain, Finland, Hungary and the Netherlands. On the other hand, several European Union countries adapted the legislation as early as 2021.