Europe's non-performing loan market appears more stable than conditions in individual countries suggest. In 2025, the volume of non-performing loans held by large banks directly supervised by the European Central Bank fell by just €1.81 billion to €355.16 billion. Behind this near-unchanged total, however, risks are shifting: NPL ratios rose in Germany and France, while Spain and other southern European countries continued to reduce theirs, according to Drooms' report "Europe's NPL Market 2026."
In Germany, NPL volumes increased by €4.56 billion to €53.49 billion, with the commercial real estate NPL ratio rising from 5.9% to 6.9%, the highest figure among the five largest markets surveyed, which also include Spain, France, Italy and the Netherlands. The German Association for Credit Purchase and Servicing expects commercial real estate refinancing volumes of €74 billion to €86 billion between 2026 and 2028, with many borrowers facing higher financing costs and lower property values. "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," said Oliver Platt, Partner at Kucera Rechtsanwälte. In France, NPL volumes rose by €7.58 billion to €127.80 billion, with the commercial real estate NPL ratio climbing from 3.4% to 3.7%, though remaining below the European average of 4.1%. "Many non-performing loans have yet to come to market," said Anthony Casagrande, Founder of Evalio.
Spain, by contrast, reduced its NPL stock by €5.70 billion to €68.66 billion in 2025, with the commercial real estate NPL ratio falling from 5.4% to 4.3% and the coverage ratio improving to 49.15%, above the European average of 42.6%. "Over the past decade, southern European banks have built up considerable expertise in managing distressed loans. 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," said José María Gil-Robles, Partner at DLA Piper.
A broad wave of loan sales has yet to materialise, as banks and owners continue to extend loans, renegotiate financing or inject additional equity. "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," said Javier Meseguer, CRO at Drooms. Antje Mertig, Managing Partner at Steinberg Real Estate Management, added that "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."
As the market becomes more selective, the due diligence required for each transaction increases, with investors needing to consolidate loan, borrower and property data from different sources and assess 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," said Alexandre Grellier, CEO of Drooms.
