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Bailey McCann, Opalesque New York:

DBRS Ratings has issued a new report - "European NPL Securitisations: Development of a New Asset Class" noting strong growth of non-performing loan securitizations across Europe.

According to the report, 2018 was a banner year for NPL securitization driven by issuance in Italy. During the most recent European crisis, Italy targeted the securitisation market to address its non-performing loan crisis. The introduction of the Garanzia Cartolarizzazione Sofferenze allowed banks to securitise portfolios with the provision of a guarantee on the senior tranche. This guarantee has helped the Italian bank market issue 20 transactions since 2016. Italy is expected to lead issuance again in 2019, but the type of issuance may shift to unlikely-to-pay (UTP) transactions. Additional NPL issuance is expected in Ireland, Portugal, Spain and Greece.

DBRS notes that the quality of European bank loan portfolios has improved over time. In Q3 2018, the ratio of NPLs to total loans continued to trend lower, currently at 3.4%. However, there is still a long runway for improvement and traders could find pockets of opportunity as banks continue to delever and clean up their balance sheets.

In terms of performance, Italian NPLs are underperforming servicers expectations with a few exceptions. Servicers are working out the exposures slower than initially expected, but the exposure-level recoveries are still in line with or higher than initial expectat......................

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