After years of traditional "non-performing loans" that banks have been unloading hundreds of billions of euros from their balance sheets for several quarters (72 billion euros of NPLs sold in 2017, according to data from Market Watch NPL), today the elephant in the room is the UTP. Acronym for "Unlikely To Pay", it is the result of a loan granted by a bank to a debtor who, for one reason or another, could subsequently be in difficulty in meeting his commitment to repay.
But how important are UTPs in the Italian non-performing loan market? In September 2017, the total non-performing exposures (NPEs) on banks' balance sheets amounted to €278 billion gross of adjustments. Of these, 62% were "gross non-performing loans" (173 billion) and 36% were "Gross UTP" (99 billion), i.e. before taking into account the "adjustments" that the banks had already made. To go from "gross" to "net" it is necessary to know the "coverage rate". Here it is: for non-performing loans it is 61,9%, therefore "net non-performing loans" equal to 66 billion. For UTPs the coverage ratio is 33,7% therefore "net UTPs" curiously at the same value of 66 billion (bearing in mind that a part of loans classified as UTPs inevitably deteriorates and ends up in non-performing loans, while another part, if adequately managed, it returns to the "good" credits, i.e. "in bonis").
«Many are unbalanced to hypothesize that a new wave is starting on the market, the sale of UTPs. In our opinion, this is an unrealistic hypothesis – he said John Bossi, Chief Executive Officer of Banca IFIS – because to get it started you need to assemble not just an efficient recovery machine, as for non-performing loans; but a credit machine, that is a "bank", ready, capable, experienced and reactive, with people who know how to give credit, and not recovery».
In addition to UTPs, the main findings of the January NPL Market Watch underline that:
- the price of NPL transactions carried out in 2017 (72,2 billion euro) was estimated at approximately 13 billion, therefore at an average price of 18%, with transactions mainly carried out in the mixed segment (mixed secured and unsecured) ;
- the amount of net non-performing loans continues to fall (-24% between the end of 2016 and November 2017) due to both adjustments and transfers to non-bank operators;
- the amount of gross NPLs decreased by 14% between the end of 2016 and November 2017 thanks to the higher sale of portfolios and better management of the same;
- the estimates of NPL portfolios for sale in 2018 amount to approximately 57 billion, of which 26 already under negotiation (approximately 16,8 billion relating to loans from the former Veneto companies which will flow into the SGA);
- the portfolios supported by GACS were sold at a higher average price, as were the portfolios containing a part of UTP;
- new agreements and M&A operations took place in the Italian market between collection operators, funds and servicers – including Intrum, which has announced its interest in acquiring Intesa's Capital Light Bank – while the "historic" servicers have increased their operating capacity.
