Looking at the NPL transactions everyone has the same question. What can we expect from a market at its lowest level for 3 years and for the first time down yoy since 2013? Well, in our opinion, more than a lot.
The Italian banking system has done a step forward to improve asset quality, but banks are facing more and more challenging NPE ratio targets in each release of their industrial plans. The reason for this lies in the regulatory pressure to further reduce the still large amount of bad loans and UtPs lying in their balance sheets, which is reflected in an aggregate NPE ratio almost three times higher than the EU average.
The renewal of GACS scheme will further facilitate the sale of bad loans, as showed in the transactions pipeline, while newly founded asset management companies (SGR) are specializing in UtP transfers and disposals, both pushed by the investor appetite for non‑core and non‑performing assets.
SGRs, together with challenger banks, will play a key role in generating value from UtP exposures, given that they are able to provide new financial resources and professional expertise to distressed companies, essential to accomplish a successful turnaround process maximising the expected recovery in a going concern scenario.
From a regulatory perspective, the latest release on calendar provisioning extends the provisioning schedule from 2 to 3 years on unsecured NPEs and from 7 to 9 for secured ones. The impacts will be strongly related to the future flows of NPEs, especially for what concerns new loans, which are fully included in the 630/2019 Regulation. Moreover, we analysed the main aspects of “Decreto Crescita” related to NPL market, while the impact of the latest reform of the Italian Bankruptcy Law is still under evaluation and will be clearer in 2020.
On top of this, out of the € 200 bn of NPLs sold by the banks over the past 5 years the majority are still to be recovered by servicers and investors. Therefore, we foresee the start-up of the secondary market we did not experience so far, driven by strategic and trading rationales, as discussed in the market outlook chapter of the report.
On the workout side, servicers built the workforce capacity and developed the IT structure needed to onboard and begin to effectively collect the NPL portfolios under management. From this point forward the focus on servicing market will likely shift from AUM growth to recovery performances, profitability and cost optimisation, pushing to aggregations, even between large market operators.
Now, even without the volumes of M&A, NPL will once again have the grounds to be a protagonist in the deals market. And it feels as if we just put another brick in the wall.
Pier Paolo Masenza
Financial Services Leader, PwC Italy
Tel: +39 06 570252472
Partner, PwC Italy
Tel: +39 02 66720351