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Credits, a 99 billion bomb for the Italian banks

27 January, Wall Street Italia

The new threat of Italian banks is called UTP, namely credits that are unlikely to be returned. At the moment, according to the estimation by Banca Ifis, these loans amount to 99 billion euro gross, while the NPLs sold in 2017 were 72 billion at the price of 13 billion.

The new NPL report by Banca Ifis, echoing the warnings of Standard & Poor’s on the Italian financial system, estimates that NPLs for a total value of 57 billion euro will be transferred in 2018, with 26 billion of these already under negotiation. But the real problem is the disposal of UTPs.

“After all the bad loans that banks have been disposing of in the last quarters, now the real problem is constituted by UTPs”, reads a memo of the bank.

A UTP is basically a loan issued by a bank to a debtor that, for any given reason, might not be able to repay its debt. Banca Ifis has tried to estimate the weight of UTPs in the totality of the Italian impaired loans.

From the survey, it emerges that in September 2017 the total impaired exposures (NPE, Non-Performing Exposures) were equal to 278 billion euro gross excluding adjustments. Of these, 62% were gross bad loans (173 billion) and 36% were gross UTPs, hence including the adjustments applied by the bank.

To get the net value, we need to know the coverage rate. Being the coverage rate for bad loans equal to 61.9%, the net bad loans will be 66 billion. Whereas the coverage rate for UTPs is equal to 33.7%, hence the net UTPs too will amount to 66 billion, keeping in mind that a portion of unlikely to pay is destined to become bad loans, while another part, if correctly managed, can return being performing.

“Many are speculating a new wave of the market with the rise of UTPs. We believe that this not very realistic”, said Giovanni Bossi, Ceo for Banca Ifis, “because, in order to do this, you don’t really need an efficient credit collection system, like with bad loans, you rather need a bank capable of issuing credit, not collecting it”.

Besides the UTP warning, the key points of the January NPL Market Watch were:

The price of the NPL transaction concluded in 2017 (72.2 billion euro) was about 13 billion euro, hence an average price equal to 18%, with operations mainly of the mixed type (secured and unsecured);

The amount of net bad loans continues to drop (-24% between the end of 2016 and November 2017) thanks both to the adjustments and the transfer to non-banking operators;

The gross NPL stock has reduced by 14% between the end of 2016 and November 2017 thanks to the increased sales of portfolios and a better management of these;

The estimated portfolios that are going for sale in 2018 amount to 57 billion, 26 of which are already under negotiation (approximately 16.8 billion are connected to the Venetian banks and they will go to SGA);

The portfolios supported by Gacs and those containing a UTP part have been sold on average at a slightly higher price;

There have been new merger and acquisition operations in the Italian market of credit collectors, funds and servicers. It’s the case, for instance, of Intrum that is intending to acquire Capital Light Bank of Intesa, while many other servicers have increased their activities.

Source: Wall Street Italia

Translator: Cristina Ambrosi

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