04 January, La Repubblica
Non-performing loans (NPL) are the main weakness of Italian banks. Over the last quarters, thanks to the improvement of the economy of the country, bad loans have significantly decreased. Bad loans, net of devaluations and provisions done by banks with their own assets, were set a 66 billion euro in October 2017, having greatly decreased compared to the 86.9 billion euro in December 2016. The reduction is slightly less than 23 billion compared to the 88.8 billion in November 2015 (the worst point of the 2008 recession).
The ratio between net bad loans and total assets has reduced to 3.79%, compared to 4.89% in December 2016. In 2018 the securitizations of NPLs (ABS, asset-backed securities) will be around 40-45 billion euro: the challenge for Italy is to create a primary and a secondary ABS market to be taken as a model by the other banks in Europe. NPL securitisations can be of two types: with or without state guarantee (GACS). GACS can be granted by the Italian Ministry of Treasury to speed up the disposal of bad loans. The Government guarantees the senior tranche which also gets the potential losses derived from credit collections lower than expected. The guarantee is granted upon a commission to be paid to the Ministry on a regular basis.
NPL securitisations without guarantee can offer returns up to 4% and 5%, a level comparable with the high-yield euro and the emerging debt. The yield of securitisations is only slightly above that of state bonds, even though with significant advantages for the issuing bank. Asset-backed securities of bad loans are a floating rate security that pays a spread of 50 cents on the Euribor (currently set at -0.30%). The positive return (0.20%) is more convenient compared to a Treasury Credit Certificate with an average duration of 5 years which currently provides a return of 0.06%.
From a bank point of view, the convenience of GACS is evident. The first four securitisations with GACS done so far have reported selling prices for bad loans between 27.2% and 33.9%, confirming the advantage for the issuing bank since securitisations without GACS usually don’t obtain payments over 20%.
Source: La Repubblica
Translator: Cristina Ambrosi