In Italy there are still €325 billion of gross non-performing loans (NPE) to be recovered: 246 billion euro of bad loans to which must be added 79 billion euro of Unlikely to pay. The data is reaffirmed by the usual NPL Market Watch published by Banca IFIS: the January edition, the first of 2020, takes a detailed picture of the non-performing loan market in Italy. A market which, as established by the recently presented industrial plan, Banca IFIS will continue to consider its core business and in which it will continue to play a leading role, with another 8,5 billion euro of purchases expected between now and 2022.
In detail, the Market Watch reports that 141 billion euros gross are still recorded today in banks' balance sheets (77 billion euros of non-performing loans and 64 billion euros of UTP), instead 198 billion euros are sold, from 2015 to the end 2019, to funds, Gacs vehicles, specialized banks and investors equipped with recovery platforms which, at the end of last year, were estimated to have been recovered or "cancelled" as they were no longer collectible (write-off on recovery) of 14 billion euros of NPLs and UTPs. And for 2020, what are the estimates? But above all, how is the market moving? By the end of 2020, based on the deals announced (39 transactions planned) an estimated 37 billion euro of gross NPL transactions an increase compared to the 32 billion euros gross transacted in 2019.
Of these 37 billion, approximately 27% could be traded on the secondary market (in 2018 the percentage stood at 17%) while 15% of non-performing loans could be deconsolidated through securitizations that benefit from the state guarantee on NPLs (Gacs). Below are the main findings of the NPL Market Watch:
• NPE stock continues to fall: 159 billion euro of bank NPEs at the end of the third quarter of 2019 (latest data available) down by 182 billion euro (-53%) compared to the end of 2015 which was the peak year, having reached Italy 341 billion euros of stock. The downward trend is in line with the European average which, between 2015 and 2019, reduced its NPEs by 48%.
• The decline in non-performing loans (NPL): the stock at the end of the third quarter of 2019 consisted of 86 billion euro of bad loans, -115 billion since the end of 2015 when Non Performing Loans in Italy amounted to 201 billion euro. The 2019 closing forecast sees the stock of NPLs falling further to 77 billion euro (-62% compared to the 2015 figure). The NPL coverage ratio is now over 60%.
• Unlikely To Pay (UTP): the coverage ratio of UTPs is stable, reaching 39% at the end of 2019. In 2020, an estimated 7 billion euros of UTP transactions are expected for a total of 10 deals. The transition from UTP to non-performing, the so-called danger rate, remains above pre-crisis levels with a percentage of 1,2% compared to 0,9% in 2007. The construction industry still shows the highest deterioration rate .
• Focus on prices: the prices of secured portfolios have remained essentially stable, fluctuating from 33% in 2018 to 34% in 2019, while the prices of unsecured assets are up by two percentage points from 6% in 2018 to 8% in 2019.
• Who buys and who sells: with 18,6 billion euro of NPLs acquired in the four-year period 2015-2019, Banca IFIS confirms itself in second place among investors preceded only by Quaestio Management Capital (29,2 billion euro of purchases). The top 10 sellers concentrate 66% of the NPLs transacted in the same period of time. The main originators were: Unicredit with 41,5 billion euros of NPLs sold, MPS with 32,8 billion euros, Banco BPM (16,3 billion) and Intesa Sanpaolo 13,8 billion.
The work of Banca IFIS then presented a focus on the Gacs:
• From 2016 to 2019, thanks to the Gacs state guarantees, banks sold 70 billion euros of non-performing loans on the market (about 72% are corporate NPLs and the remaining 28% are individual NPLs) for a total of 24 securitisations. For 2020, the estimate is a further 6 billion euros of NPLs sold through the Gacs scheme.
• The dynamics of prices in the last two years show a correlation between the quotation of the guaranteed portfolio and the presence of a greater secured component: in 2018 the average price was 28,7% against a presence of 73% of secured NPLs, in 2019 the average was 24,7% with a presence of 68% of secured loans.
• The recovery performance of the Gacs portfolios is on average 3% in line with the market recovery dynamics (3,1% on average). Five Gacs portfolios have exceeded the objectives set by the business plan in terms of gross and net inflows.
The Market Watch NPL January 2020 edition is downloadable also online.
