Europe’s NPL picture steadier than national trends as Germany and France face rising stress

Europe’s non‑performing loan market remained broadly stable in 2025, with NPL volumes at large banks supervised by the ECB edging down by just €1.81 billion to €355.16 billion, according to Drooms’ latest report, Europe’s NPL Market 2026. 

Alexandre Grellier, Drooms

Beneath the headline figure, however, risks are shifting sharply between countries, driven largely by commercial real estate exposures.

Germany saw NPL volumes rise by €4.56 billion to €53.49 billion. Commercial real estate financing is under particular pressure, with the NPL ratio increasing from 5.9 per cent to 6.9 per cent – the highest among Europe’s five largest markets. The German Association for Credit Purchase and Servicing expects €74–86 billion of CRE refinancing between 2026 and 2028, with many borrowers facing higher financing costs, lower valuations and changed market conditions at loan maturity.

Oliver Platt, Partner at Kucera Rechtsanwälte, said the true level of risk in German CRE loan books is likely higher than official ratios suggest, with geopolitical uncertainty exposing pressure points in refinancing, cash flows and valuations. Office‑heavy portfolios in secondary locations, weaker retail assets and highly leveraged value‑add structures are most affected, while core logistics, grocery‑anchored retail and prime CBD assets remain more resilient.

France also recorded rising NPL ratios. Volumes increased by €7.58 billion to €127.80 billion, with the CRE NPL ratio rising from 3.4 per cent to 3.7 per cent, still below the European average of 4.1 per cent. Risks are concentrated in specific lending segments: more than 70 per cent of construction loans and 74 per cent of investor loans mature within two years, many structured as bullet loans or with variable rates.

Anthony Casagrande, Founder of Evalio, noted that French banks’ international exposure means domestic NPL volumes do not fully reflect the French market, but that Europe‑wide CRE dislocation is clearly visible and many non‑performing loans have yet to reach the market.

Spain continues to move in the opposite direction. NPL volumes fell by €5.70 billion to €68.66 billion in 2025, with the overall NPL ratio declining from 2.68 per cent to 2.48 per cent. The CRE NPL ratio dropped sharply from 5.4 per cent to 4.3 per cent, while the coverage ratio improved to 49.15 per cent, above the European average.

Spain’s progress reflects a decade‑long clean‑up of distressed loans and the development of specialist servicing and trading structures. José María Gil‑Robles, Partner at DLA Piper, said southern European banks have built significant expertise in managing distressed loans, with investors increasingly trading loans close to default or recently restructured, while traditional NPLs continue to move more cautiously.

Across Europe, a broad wave of NPL sales has yet to materialise. Banks and owners are extending loans, renegotiating terms or injecting equity, but rising NPL stocks and refinancing deadlines are increasing pressure. Drooms expects transaction activity to pick up gradually and selectively, including smaller portfolios, individual loan exposures and sales prepared before loans are formally classified as non‑performing.

Javier Meseguer, CRO at Drooms, said maturing loans and rising NPL stocks in Germany and France are forcing lenders and owners to decide whether to extend, restructure or sell. Antje Mertig, Managing Partner at Steinberg Real Estate Management, added that extensions have bought time but do not solve underlying issues when financing costs, valuations and business plans remain misaligned.

As the market becomes more selective, due diligence requirements are increasing. Investors must consolidate loan, borrower and property data from multiple sources and assess financial, collateral, valuation, legal and technical risks. Alexandre Grellier, CEO of Drooms, said the quality of information is becoming more important than the volume of loans available, with structured data and transparent processes helping investors identify risks earlier and make faster decisions.