For the second consecutive year, in 2018 suffering has significantly decreased accumulated by Italian banks (approximately -39% in net terms), with a decrease of 25 billion compared to September 2017. This was favored, on the one hand, by NPL disposal operations by banks and, on the other, by the confirmed reduction in new flows of non-performing loans. Hand in hand non-performing loans, i.e. loans that are past due or with a high probability of not being paid, have decreased.
The positive trend is mainly due to the improvements recorded in companies: the deterioration rate for non-financial companies, which it describes the share of credits in performing moved to non-performing status, fell from 3,4% in the last quarter of 2017 to 2,8% in the third quarter of 2018 (it was 4% in the third quarter of 2008). This reduction was partly driven by the favorable economic situation, but also by the more careful selection in the granting of credit to businesses.
These are the main findings that emerged from the new Outlook Abi-Cerved on the bad debts of companies (December 2018 edition with data updated to 30 September 2018), which thanks to new information on balance sheets, defaults and the macroeconomic scenario updates the 2017 data, provides estimates for 2018 and forecasts for the two-year period 2019-20.
In 2018, the decline in rates of entry into non-performing loans also continued: from 2,8% in 2017 to 2,4% (estimated figure) in 2018, with a decrease that involved all company sizes, all economic sectors and all territorial areas. The forecasts elaborated on the basis of the Abi-Cerved models indicate that the decline will continue in the next two years throughout the economy, even if at a slower pace than expected in the previous Report of February 2018: in 2020 the incidence of new non-performing loans will amount to 2,1%, with rates close to pre-crisis levels for companies with at least 10 employees, for those operating in industry (in particular small and medium-sized manufacturing companies dimensions) and those located in the North. Micro-enterprises, companies in the Centre-South and construction companies, however, will move away from the risk peaks reached in the midst of the crisis.
“Even in the event of a worsening of the economic situation, in the short term we expect limited effects on new non-performing loans originating from loans to businesses. This – comments Gianandrea De Bernardis, CEO of Cerved – thanks to the strengthening of the fundamentals of the companies, which we have observed for some years and to the more careful selection of credit made by the banks after the crisis”.
“The data presented today confirm that the improvement in the quality of the assets of banks operating in Italy continues: not only the percentage of loans that migrate from performing to NPL during the year has now fallen below pre-crisis levels , but in the next two years a further contraction is also expected in the flows of new non-performing loans”. This is, in summary, the judgment of Giovanni Sabatini, Director General of Abi, who underlines that “this process is closely linked to the dynamics of the national economy, which, despite a downward revisions scenario, is expected to remain on positive rates of change also in the next two years. Growth is, therefore, a key factor, on which we need everyone's maximum commitment."
Non-performing loans originated from loans granted to companies
In 2018, therefore, the decline in the stock of non-performing loans accumulated by Italian banks continued. From the latest available data (September 2018) the stock stands at 120 billion gross (-30,7% on an annual basis), with a marked decrease in loans originated by businesses (-31,1%). Net non-performing loans, which take into account the adjustments already accounted for by the banks and which express the true residual risk in the bank balance sheets, they are even below 40 billion (-39,4% compared to 66 in September 2017 and -55% compared to the peak in November 2015).
These improvements reflect the positive dynamics of non-performing loan rates of non-financial companies: in terms of amounts, from 3,4% in mid-2017 to 2,6% in the second quarter of 2018; in terms of number of loans, from 3,3% to 2,6%. Albeit the non-performing entry rate remains at higher levels than pre-crisis levels (1,5% in 2008), it should be emphasized that the flow of all loans entering non-performing status has instead now fallen below the values of 2008.
This seems to indicate that we are in a tail end phase of the credit deterioration process - in which, according to custom, overdue loans (net of those that return to performing status) gradually transform into non-performing loans, while the flow of performing loans is reduced entering into insolvency (in the form of overdue loans or unlikely to pay). Overall, therefore, this is a positive scenario. In particular, based on estimates, in 2018 the volume of new non-performing loans originating from loans to businesses should amount to 14 billion euro, -25,8% compared to 19 in 2017 and about a third of the all-time high reached in 2013 (40 ). The number of non-performing loans has also dropped sharply: the estimated figure for 2018 is around 15 thousand, -18% on 2017 and -45% on 2014.
The official data on new non-performing loans include details by geographical area, productive sectors and credit cuts granted by banks, but not by company size. Abi and Cerved estimated these indicators based on individual risk scores which Cerved develops for Italian companies.
From the 2017 the bad entry rates have decreased in all the dimensional bands and in the 2018 the trend has continued, albeit less marked: in the micro and small enterprises are estimated at 2,6% and 1,9% (from 3% and 2,2% of the year before), in the medium and large sectors are hovered respectively on 1,4% and 1,1% (against 1,7% and 1,2%). In all cases, rates equivalent to or lower than the values of 2009 are reached or consolidated.
The forecasts for the 2020
On the basis of a macroeconomic scenario which for the next two years incorporates growth of the Italian economy of just over 1%, the rates of entry into non-performing loans in the next two years are forecast to drop further, even if at a slower pace than experienced in the recent past, with a reduction from 2,4% to 2,3% in 2019, to then reach 2,1% in 2020: a figure in sharp decline from the peak of 2016 but still higher than pre-crisis levels (1,7%). These forecasts slightly worsen those formulated last February for 2019 (2,1%), reflecting less favorable macroeconomic conditions.
According to forecasts by size range, the dthe decline will continue at a faster rate among micro-enterprises and small companies, while it will tend to stabilize at the lowest levels of the last decade for large companies. In all size brackets, in 2019 the rates of entry into bad debts will still be higher than pre-crisis levels, while in 2020 they are expected to be 2,2% among micro-enterprises, 1,7% among small enterprises, 1,3 .1,2% among medium-sized companies and XNUMX% among major companies.
In 2020 risk differentials between sectors will tend to decrease as a result of a convergence of trends, with default rates at 1,8-2% in industry, agriculture and services and a sharp decline in the construction sector ( 2,5%). More detailed forecasts indicate that at the end of the period rates will have returned to levels similar to or below pre-crisis levels in the entire industrial sector, with the sole exception of micro-enterprises. The decline will continue in construction and services as well.
In 2019 all geographical areas will benefit from a widespread improvement; in 2020 in the North pre-crisis levels will almost be recovered, while in the Centre-South a gap will remain with respect to the 2008 values, albeit decreasing with respect to the peaks of recent years. With a non-performing entry rate of 2,9%, companies in the South will confirm their place as the riskiest in 2020, followed by those in the Center (2,6%), the North West (1,7%) and the North East ( 1,6%).
