The European Commission today launched a package of proposals to reform the management of non-performing loans (NPLs) in the banking sector. The most important aspect concerns new provisions required from institutions to cover the risk that future loans may deteriorate. This is no small detail: reference is made only to new NPLs, not to existing ones.
The basic idea is that guaranteed suffering must be covered 100% over 8 years, with a slow progression. Here is the scheme:
- 5% the first year;
- 10% the second year;
- 17,5% the third year;
- 27,5% the fourth year;
- 40% the fifth year;
- 55% the sixth year;
- 75% the seventh year;
- 100% in the eighth year.
unsecured bad debts, on the other hand, much faster times are expected. The coverage must be completed within a two-year period:
- 35% the first year;
- 100% the second year.
Last October, the ECB's Supervisory Board advanced a similar proposition. The main difference was that a maximum time of 7 years was envisaged to set aside the funds necessary to cover the new guaranteed NPLs.
Returning to the measures devised by the Commission, the package also aims to encourage the development of secondary markets on which banks can sell non-performing loans to entities active in loan management and investors.
The third and last main objective is to facilitate debt collection. In this case, the intervention integrates a proposal on insolvency and corporate restructuring presented in November 2016.
With regard to banking and financial risks, Italy "is under special observation" by other European countries, he commented Ignazio Angeloni, member of the supervisory board of the ECB, answering a question at a conference on social security itineraries.
"Italy's choices, as a debtor country albeit towards the interior and with banks still partly in risky situations, are important", added Angeloni, reiterating that the country cannot fail to be present in the debate that opens in Europe "for the reform of the euro, the support of countries in crisis and banks in crisis".
Angeloni recalled how Italy "is the country that has made the greatest progress in the last 2-3 years in cleaning up NPL balance sheets". A cleaning that would have occurred in any case thanks to the recovery of the economic cycle but which the ECB Supervision has accelerated. “The encouragement action of the ECB was decisive in producing these brilliant results of the Italian banks which must be consolidated and continued”, he concluded.
Even the Vice-President of the European Commission, Valdis Dombrovskis, acknowledged that Italy has made "substantial progress" in reducing bad debts.
In the third quarter of 2016 the stock of gross bank bad loans in Italy it was equal to 16,1% of total loans, while in the same period of the following year the figure had dropped to 12,1%.
The ratio between the money needed to cover any losses and total non-performing loans rose in the same period from 50% to 53,6% (compared to an EU average which increased from 47,7% to 50,7%).
Italy is the fourth EU country with the highest share of NPLs. In Greece in the third quarter of 2017 they amounted to 46,7% of total loans, in Cyprus they were instead 32,1% and in Portugal 14,6%. After Italy, Bulgaria follows at 11,5%, Ireland at 11,2%, Slovenia and Croatia at 10,8%.
