17 January, 4-traders
72 billion of NPLs sold in 2017 for a price of about 13 billion euro. The new edition of the NPL report edit by Banca IFIS estimates that in 2018 about 57 billion euro worth of NPLs will be sold, of which 26 billion euro already ongoing.
After years of continuous spotlight on bank NPLs, which banks are now removing from their balance sheet in the last quarters (72 billion euro of NPLs sold in 2017, based on the Market Watch NPL’s data), today the elephant in the room is the UTP. Acronym for ‘Unlikely To Pay’, it is the result of a bank loan to a debtor who, for one reason or another, could be finding it difficult to eventually meet his commitment to repay.
But how much do UTPs weights in the Italian bad loans market? In September 2017, total non-performing exposures (NPE) in banks’ balance sheets amounted to 278 billion euros gross of adjustments. Of these, 62% were ‘gross bad debts’ (173 billion) and 36% were ‘gross UTPs’ (99 billion), that is, 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 bad loans, it is 61,9%, therefore ‘net non-performing loans’ equal to 66 billion. For UTPs, the coverage ratio is 33,7%, therefore ‘net UTP’ curiously amount to 66 billion (keeping in mind that a part of loans classified as UTPs inevitably deteriorates and ends up in bad loans, while another part, if properly managed, returns to ‘good’ loans, that is: ‘performing’).
«Many suppose that a lively ‘market’ for the sale of UTPs is possible, but for us it is not a realistic hypothesis – said Giovanni Bossi, CEO of Banca IFIS – because in order to start it, what needs to be put in place is not an efficient recovery machine, as for bad loans; but rather, a credit machine, i.e. a ‘bank’, ready and capable, experienced and reactive, managed by people who know how to work with credit, and not collection».
Beyond UTP, the data of the Market Watch NPL – January 2018 edition highlights that:
- the value of NPL transaction carried out in 2017 (72,2 billion euro) is about 13 billion euro, so with an average price of 18%, with deals signed mainly on the mixed segment (secured and unsecured);
- the amount of the net bad loans decreases (-24% between the end of 2016 and November 2017) thanks both to the adjustments and to the sale to non-banking players;
- the amount of gross NPL decreases (-14% between the end of 2016 and November 2017) thanks both to a major disposal and to an improved management of the portfolios;
- estimations on the NPL sale in 2018 amount already at 57 billion euro, of which 26 billion euro already ongoing (about 16,8 billion belong to the loans of the former ‘Venete’ banks that will be transferred in the SGA);
- portfolios supported by GACS were sold at a higher price, as well as for portfolio containing a part of UTP;
- new agreements and M&A deals took place in the Italian market between collection players, funds and servicers – amongst these Intrum, that announced the interest in acquiring Intesa’s Capital Light Bank – while the historical servicers incremented the operative capacity.