Spain’s economy led Europe in 2024, with GDP growth revised upward to 3.1%, far exceeding the eurozone average of 0.8%, according to the Bank of Spain (BOS). Growth was underpinned by strong private consumption, supported by a resilient labour market, rising disposable incomes, employment growth, and immigration-fuelled population increases. Elevated government spending through Next Generation EU funds, a sustained tourism rebound, and improved competitiveness in services further bolstered economic performance.
After two years of foreign demand driving growth, the economy is expected to shift toward greater domestic demand in the coming years. The service sector, including record-breaking tourism, is likely to normalise in 2025, while household consumption moderates as pent-up savings decline. Inflation eased in 2024, with headline rates at 2.8%, and is projected to decline to 2.1% in 2025 and 1.7% in 2026, predicts Caixa Bank. Core inflation is expected to fall from 2.6% in 2024 to 1.8% by 2027, driven by moderating food prices and reduced inflationary pressures in services.
Risks include potential US tariff hikes under the second Trump administration, though Spain’s smaller trade surplus with the US limits vulnerability compared to Germany and Italy. Investment remains weak, and economic policy uncertainty remains high, warns BBVA. Geopolitical conflicts could also impact Spain indirectly through slower growth and inflation in key European economies.
NPL 2024 Review
Spain’s NPL market remained stable throughout 2024, with quarter-on-quarter declines in NPL ratios reported by CaixaBank and Sabadell, attributed to effective credit risk management, higher recoveries, and reduced inflows of new NPLs. Stage 2 loans decreased across Spanish banks, reflecting better-than-expected asset quality improvements. The overall NPL ratio fell to 3.4% in H1 2024, down from 4.8% in 2019, according to the Bank of Spain (BOS). Since 2008, Spanish banks have offload an estimated €263 billion in distressed assets.
The NPL securitisation market was subdued, with only one small publicly rated transaction. Shrinking transaction sizes and rising costs reduced the attractiveness of securitisation relative to direct loan portfolio sales. However, ongoing restructuring efforts – including servicer replacements, portfolio sales, and call option exercises – enhanced portfolio NPL performance and profitability, suggests DBRS Morningstar. Loan servicers have adapted to declining volumes of distressed assets by diversifying into new business areas, including residential development, decarbonisation projects, and innovation in asset management. Consolidation within the servicer sector has also continued, driven by smaller margins and the need for scale. Servicers that are slow to adapt to the changing landscape risk becoming acquisition targets.
Spain’s banking system remained robust, supported by strong liquidity, good capitalisation, and record profitability. Regulatory measures, such as the EU Restructuring Directive, further stabilised the market by improving the efficiency of distressed asset management.
Outlook
NPL levels in Spain are expected to rise slightly in 2025, driven by the growing share of consumer and retail loans, which carry higher risk than collateralised loans or mortgages. Additional deterioration could arise from geopolitical and macroeconomic uncertainties, particularly in sectors exposed to international trade. The Valencia floods in late 2024, which caused extensive damage to infrastructure, homes, and vehicles, are expected to materialise as NPL losses after Q2 2025.
NPL sales are forecast to continue at a steady pace, at around €10-13 billion in 2025, according to forecasts by consulting firm Atlas Value Management. The securitisation of re-performing loans (RPLs) is likely to gain traction as banks align with Basel IV capital efficiency requirements.
Sareb, Spain’s bad bank, is progressing towards the end of its life, as it approaches its 2027 liquidation deadline. Sareb still holds €29.4 billion in debt guaranteed by the Spanish Treasury and must finalise asset sales in the next three years. Decisions around the sale of its residential developer, Árqura, will be closely followed.
The BBVA-Sabadell merger has been delayed due to Phase-2 scrutiny by Spain’s competition authority (CNMC) on competition concerns. The delay may intensify competition in profitable lending segments such as consumer and SME loans, tightening margins and pressuring profitability.
The public NPL securitisation market is likely to remain subdued, while private transactions continue to dominate. An anticipated rise in re-performing loan (RPL) securitisations, particularly residential mortgage-backed securities (RMBS), signals a shift in focus for the secondary market. However, reduced NPL volumes and higher financing costs may lead to further servicer consolidation, adding operational pressure.
Spain’s housing market, although slow in terms of new mortgage flows, remains relatively insulated from sharp corrections due to limited new supply and high construction costs. However, risks from delayed recoveries, negative revisions to business plans, and weakened collections could indirectly contribute to rising NPL volumes.
The secondary market is expected to remain active despite challenges. Restructuring efforts, portfolio sales, and servicing adjustments will continue to play a key role in optimising portfolio performance. While securitisation activity remains low, the rise in RPL securitisations highlights a growing focus on alternative solutions to address NPLs.
In conclusion, while Spain’s NPL market faces moderate challenges in 2025, strong banking fundamentals, proactive regulatory frameworks, and fast-maturing secondary market provides a solid foundation to navigate emerging risks.
Tags: 2025, NPL, outlook, Spain
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