The Npl market will inevitably be overwhelmed by the crisis linked to the coronavirus. This is clear: the number of non-performing loans held by banks will increase, and as regards the loans sold and currently held by recovery professionals, it will be increasingly difficult, if not impossible, to recover a large part of them. This was discussed in the debate - strictly online - held on Google Meet between Giovanni Bossi and Massimo Famularo, and not surprisingly called "Npl Call". Bossi needs no introduction: a banker who has been an expert in non-performing loans for years, former CEO of Banca IFIS and today founder of Cherry NPL and Cherry 106 and co-head of the Clessidra fund. While his interlocutor is Managing Director, Head of Italian NPLs of Distressed Technologies.
"The world of recovery, everything, is on standby as recovery is slower, more difficult, and debtors are not available to commit themselves at this moment," admitted Bossi during the discussion. “The current situation is having a major impact on businesses. If this situation were to continue, the Italian market would be flooded with UTP credits. First of all, UTP credits that can be brought back to performing status must be distinguished from those that are destined to become NPLs”, however specified the Trieste manager. “For the former, it is necessary for the bank that granted the credit to take charge of the situation and manage it on a case-by-case basis, perhaps with the help of outsourcers. The massive sale of UTP credits does not put the buyer in a position to be able to do this work to bring the company back to performing status”.
“There is a problem though – underlines Bossi -: the Italian market is not in a position to respond at this moment to this new, possible wave of credits. We will have to give birth to a new industry that can guarantee the large-scale work capacity to manage this mass of credits". This emergency also arrived in the world where the Italian Npl market was proving to be the most dynamic in Europe: in January in Italy there were 325 billion euros of gross non-performing loans (NPE) still to be recovered: 246 billion euro of bad loans to which must be added 79 billion euro of Unlikely to pay.
However, the stock in the belly of the banks continues to decrease (-53% at the end of 2019, compared to the peak of 2015), so much so that today almost all of them meet the threshold set by European parameters, or are close to it. The problem, however, is recovery: “The prices of NPL portfolios derive from the ability to recover part of the sums owed as quickly as possible – Bossi explained on the live web -. The value of non-performing portfolios is already lower than it was a couple of months ago, but it will be even lower in the coming months. The longer and more complicated recovery, the firm courts, people with an even more uncertain horizon and a growing fear of making installment payment commitments will cause the value of the portfolios to decrease between 20 and 40%".
“The servicing activity has to do with debtors who are often families/individuals – added the founder of Cherry NPL -, and the social responsibility of those who work in this sector is very important, especially in times like this. We are dealing with a market that has had and aims to recover as much as possible but this can no longer be the approach in a world that has changed. In the future, if we want to adequately support the household economy, we will have to find solutions that are sustainable. There are investors in the market with "patient" money who can invest over long, compatible and sustainable timescales".
“This money can therefore also be made available to debtors – individuals and families, who want to balance themselves but find it hard to do so. I am convinced that today and in the future the financial system tout-court must help debtors get back into balance, and this can only be done with a medium-long term investment strategy. I'm talking about something new that doesn't exist today, a way of approaching the debtor by transforming an uncertain cash flow into a certain cash flow but in the long term”, concluded Bossi.
