The Italian NPL Market

This publication provides on a regular basis an update (in English) on the Non Performing Loans (NPL) market in Italy.

Entering a New Era

The current Italian NPE market is extremely lively and the 2018 volume of transactions is going to break last year record of circa €69bn of closed deals. As of November 2018 the NPE closed transactions amounted to €68bn and, on the basis of the announced and ongoing transactions 2018 could reach an impressive volume of more than €70bn.

The market has been driven mainly by i) jumbo deals such as the €24.1bn (GBV) bad loans securitization completed by MPS and the €10.8bn (GBV) bad loans portfolio sold to Intrum by Intesa Sanpaolo along with 51% stake of their captive workout platform, ii) other significant securitizations backed by GACS as the disposal of €5.1bn, €2.7bn, €1.9bn (GBV) bad loans portfolios deleveraged respectively by Banco BPM, UBI Banca and BPER Banca, iii) a number of true sale transactions.

In terms of volumes, due to these massive disposals, NPE in the books of the Italian banks declined further reaching a volume equal to €222bn as at June 2018. Gross bad loans and Unlikely to Pay (UtP) exposures reached €130bn and €86bn respectively (from €165bn and €94bn as at December 2017).

In terms of provisions, NPE coverage increased significantly from December 2017 to June 2018, in particular for the Top 10 Italian banks Bad Loans and UtP coverage ratios reached 65.8% and 35.0% respectively (compared to 61.6% and 31.0% as at December 2017). Higher coverage of NPE mainly resulted from the first time application (FTA) by the Italian banks from 1 January 2018 of the IFRS9 based upon forward looking and expected loss approach on the one hand and on the other hand by the implementation by the banking system of the recommendations and requirements of the Regulators. 

Among them, ECB has maintained the credit risk area among the SSM priorities for 2019, resulting in ongoing pressure to achieve consistent coverage of the stock of NPE in the medium term. Calendar provisioning included in the ECB Addendum, will require an impairment equal to 100% of the new flows of NPE in 2/7 years for unsecured/secured exposures. The recent EBA guidelines on non performing and foreborne exposures will drive the industrialisation of the NPE management even more decisively than before.

In terms of market dynamics we foresee several trends for 2019.

  • Further disposals of NPE potentially reaching €50bn. In this context in order to favor the deleveraging process measures may be introduced by the Regulator, that automatically would allow the banks, that undergo significant disposal amounts, to sterilize the effect on LGD.
  • As already witnessed in 2018, further multiorigination disposals could be structured in order to allow less significant banks to easily dispose of their NPE portfolios that on a single basis would not be interesting for investors due to their limited size.
  • The secondary market is gradually growing up due to the exit strategies of previous investors and the increasing interest of new players entering the Italian market.
  • Further measures to be implemented by the Italian banks to achieve the Regulatory requirements in terms of improving the industrial efficiency of the NPE management.
  • The UtP market, yet in an early stage, and quite limited in terms of volumes and number of transactions, should be the next challenge and opportunity for the Italian banks. Single names and small portfolio transactions, featuring the UtP market, could proceed together with or make way for new innovative deleverage structured solutions. Among them there could be securitisation operations, theoretically even with GACS if the State guarantee would be renewed in March 2019 and possibly extended to UtP. Restructuring funds (AIF) to which banks transfer their UtP while investors inject liquidity aimed at financing these UtP, have already found their place in the market. There could even be room for an innovative and tailor made UtP servicing leveraging lending capabilities and restructuring expertise. In this context, the so called challenger banks could position themselves as providers of strategic solutions for the UtP issue.
  • Last year the servicing sector featured a consolidation path through the acquisition by big players of either independent servicers or captive workout banking platforms. The trend continued even into 2018 as confirmed by the acquisition of the 51% stake of the workout platform of Intesa Sanpaolo by Intrum and the announced potential disposal of the platform of Banco BPM along with the sale of a portion of their NPE portfolio. Further M&A in the servicing market could be pursued in 2019.

Italy is currently under the spotlight of the international market and the NPE on the books of the Italian banks are still a driver in the eyes of the International community. The market pressure is huge as highlighted by the inverse correlation between the market cap on the tangible book value ratio of the Italian banks and their NPE ratio. Of note, the yield increase of the 10- year Italian Government bonds or the rising cost of the CDS associated to the Italian lenders reported over the last nine months.

As a result of this significant pressure by the Regulators and the market, Italy NPE arena will enter a new era of further process industrialization and deleveraging plans. Hence, Italy is still the place to be! Stay tuned.




December 2018


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Contact us

Pier Paolo Masenza

Financial Services Leader, PwC Italy

Tel: +39 06 570252472

Fedele Pascuzzi

Partner, PwC Italy

Tel: +39 02 66720351

Alessandro Biondi

CO-Head of NPL, PwC Italy

Tel: +39 02 7785222

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