Few markets show the impact of long-term NPL reduction as clearly as Spain. In 2025, NPL volumes fell by €5.70bn to €68.66bn, the largest absolute decline across the five markets examined in the Drooms NPL Report 2026. The overall NPL ratio also dropped from 2.68% to 2.48%.
The more interesting story, however, is that several indicators are now moving in the same direction.
Falling risk, stronger coverage
Spain’s CRE NPL ratio declined from 5.4% to 4.3%, bringing it close to the EU/EEA average of 4.1%. At the same time, the NPL coverage ratio rose by 2.89 percentage points to 49.15%, the strongest improvement among the five markets covered by the report.
The combination is significant: fewer problem loans, lower CRE distress and stronger coverage of the NPLs that remain. Rather than simply reducing volumes, Spain is improving the overall risk profile of its NPL stock.
The legacy pool is getting smaller
That progress reflects years of balance-sheet repair following the financial and euro crises. Loan sales, securitisations and state-supported resolution mechanisms helped Spanish banks work through large legacy NPL portfolios over an extended period.
The result is a market entering a later stage of the cycle. The stock of older problem loans capable of generating new large-scale portfolio sales has fallen considerably, changing the type of transactions likely to come to market.
From clean-up to selectivity
Spain’s shrinking legacy stock coincides with a broader European shift towards smaller portfolios, individual exposures and secondary sales between credit investors. The European Commission had already observed an increase in such resales in 2023.
For Spain, this means that future activity is less likely to be defined by the scale of previous balance-sheet clean-ups. The focus is increasingly on specific opportunities where the economics of an individual exposure justify closer attention.
The investment question has changed
Spain’s NPL market is therefore no longer primarily a story of how much distressed debt still needs to be removed from bank balance sheets. The more relevant question is what remains, and where attractive risk-adjusted opportunities can still be found.
With headline indicators improving, investors will need to be more selective. Understanding the borrower, collateral, asset fundamentals and legal position behind each exposure becomes more important as broad-based distress gives way to a narrower transaction landscape.
