Drooms: NPL risks are shifting across Europe

October 27, 2026

Europe’s NPL market appears more stable than developments in individual countries might suggest. In 2025, the volume of non-performing loans held by large banks directly supervised by the European Central Bank (ECB) fell by just €1.81 billion to €355.16 billion.

Behind this nearly unchanged total, however, risks are shifting significantly: NPL ratios rose in Germany and France, while Spain and other southern European countries continued to reduce theirs. These are the findings of Drooms’ latest report, 'Europe’s NPL Market 2026.'

In Germany, NPL volumes increased by €4.56 billion to €53.49 billion. Commercial real estate financing is under particular pressure: the NPL ratio rose from 5.9% to 6.9%. This is the highest figure among the five largest markets (Germany, Spain, France, Italy and the Netherlands).

The German Association for Credit Purchase and Servicing (Bundesvereinigung Kreditankauf und Servicing, BKS) also expects commercial real estate refinancing volumes of €74 billion to €86 billion between 2026 and 2028. Many borrowers face higher financing costs, significantly lower property values and changed market conditions when their loans come up for renewal.

'The actual risk in Germany’s commercial real estate loan books is likely to be considerably higher than current official NPL ratios suggest. Geopolitical uncertainty is acting as a catalyst, further exposing existing pressure points in refinancing, cash flows and valuations,' says Oliver Platt, Partner at Kucera Rechtsanwälte.

Office-heavy portfolios in B and C locations, weaker retail properties and highly leveraged value-add structures are particularly affected. Core logistics, grocery-anchored local retail and prime CBD assets, by contrast, have proved relatively resilient.

NPL ratios are also rising in France. NPL volumes increased by €7.58 billion to €127.80 billion. The NPL ratio for commercial real estate loans rose from 3.4% to 3.7%, but remained below the European average of 4.1%. Risks are concentrated in specific lending segments: 70.1% of loans financing construction projects mature within the next two years, as do 74% of loans to real estate investors. Many of these loans are bullet loans or carry variable interest rates.

'French banks have a strong international presence. The NPL volumes on their books do not necessarily reflect the French market as a whole. But we are seeing the Europe-wide dislocation in commercial real estate in France, too. Many non-performing loans have yet to come to market,' explains Anthony Casagrande, Founder of Evalio.

Spain, by contrast, is continuing to reduce its NPL stock. In 2025, volumes fell by €5.70 billion to €68.66 billion. The overall NPL ratio also declined, from 2.68% to 2.48%. The ratio for commercial real estate loans fell particularly sharply, from 5.4% to 4.3%. The coverage ratio improved to 49.15%, above the European average of 42.6%.

A selective recovery in transaction activity is expected

Spain’s progress is linked to the longer-term clean-up of non-performing loans and the development of specialist structures to manage them. 'Over the past decade, southern European banks have built up considerable expertise in managing distressed loans. Ongoing regulatory pressure and a well-developed market for servicing and trading NPLs have helped make the overall market appear more stable than some northern European markets. Spanish investors are increasingly trading loans that are close to default or have recently been restructured, while traditional NPLs are still changing hands only cautiously,' says José María Gil-Robles, Partner at DLA Piper.

This is one reason why a broad wave of sales has yet to materialise. Banks and owners are extending loans, renegotiating financing or injecting additional equity. However, rising NPL stocks and upcoming refinancing deadlines are increasing pressure to make decisions. Drooms therefore expects transaction activity to pick up gradually and selectively, for example through smaller portfolios, individual loan exposures and sales prepared before loans are formally classified as non-performing.

'The transaction market remains subdued for now, while pressure to make decisions is mounting. Maturing loans and rising NPL stocks in Germany and France are forcing more and more lenders and owners to decide whether to extend, restructure or sell. We therefore expect transaction activity to pick up gradually and selectively,' says Javier Meseguer, CRO at Drooms.

'The ‘prolongation game’ has bought banks and borrowers time and, in many cases, helped them avoid abrupt write-downs or sales. But it does not solve the underlying problem. When financing costs, valuations and business plans remain out of sync, extensions reach their limit. Banks and owners then have to restructure, sell or realise losses,' says Antje Mertig, Managing Partner at Steinberg Real Estate Management.

As the market becomes more selective, the due diligence required for each transaction also increases. Investors need to consolidate loan, borrower and property data from different sources and assess not only financial positions but also collateral, valuations, and legal and technical risks.

'In a selective NPL market, the quality of information matters more than the sheer volume of loans available. Bringing loan, borrower and property data together in a structured way and making due diligence processes transparent helps investors identify risks earlier and reach sound decisions faster,' says Alexandre Grellier, CEO of Drooms.