Median gross recoveries for nonperforming loan (NPL) securitisations continued to be down by over 10% for most of the second half of 2020 compared to the 2019 average due to the impact of the Covid-19 pandemic, Moody's Investors Service said in a report on Wednesday.
The collateral in NPL transactions is vulnerable to varying degrees of pandemic-related economic stress in real estate markets. However, the coronavirus crisis is not affecting all asset types in the same manner. For example, the increase in e-commerce as a result of lockdowns is positive for light industrial buildings that can be transformed for logistics use. Prime logistics properties and supermarkets have low vulnerability to pandemic stresses.Discretionary retail and hotels are highly vulnerable, however.
Despite the relatively strong performance of residential real estate markets in 2020, subdued housing market activity and declines in house prices are likely to increase foreclosure timing and reduce recoveries, which are negative for the performance of NPL transactions.
‘Court appraisals, property inspections and auctions were frozen during the first lockdowns and had to be rescheduled, creating a backlog of legal proceedings that has not yet been fully resolved,’ said Maria Turbica Manrique, a Moody's vice president - Senior Credit Officer and the report's co-author. ‘Notesales partially compensate for the delays in judicial recoveries, but we will continue to assess whether faster collections are achieved at the cost of lower recoveries.’
Fifteen of the 24 Italian, Portuguese and Spanish transactions covered in the report show cumulative gross collections below those anticipated by the servicers' projections in the original business plans. Two transactions that were ahead of original projections as of the last publication are now underperforming.
Median gross collections for Italian NPL transactions were 21% lower in 2020 than in 2019, with most down more than 10% and some even 50% lower.
The outstanding stock of NPL securitisations that Moody's rates consists of 34 transactions with a combined updated gross book value (GBV) of €72.5 bn.
