30 May, Bebeez
This year, NPL transfers of Italian banks will amount to 65 billion euro in total, following the 35 billion in 2017, said yesterday Ignazio Visco, governor of Banca d’Italia, during the 2017 yearly conference of the Surveillance Authority. He also added that according to the plans announced last March about a common surveillance system, the stock of bad loans of the leading Italian banks would be halved by 2020 in comparison with the levels registered at the end of 2017. In fact, the total impact of loans, net of the value adjustments, is supposed to decrease by approximately 4% for the biggest banks, and by 5% for the entire banking system.
Visco also mentioned that a small part of the operations that were carried out last year concerned unlikely to pay, namely those credits which might be paid by the debtor, and banks have planned other transactions of this type. Visco stressed how “such transactions would benefit greatly from the collaboration with specialised companies such as the so-called turn-around funds, still not very common in Italy, which are capable of providing to companies with the funding as well the managerial resources necessary to relaunch the business”.
In 2017, the stream of the new bad loans compared to the total credits decreased by half percentage point, setting at 2.1% and returning to the pre-crisis level. This reduction has also continued in the first quarter of 2018, reaching 1.7% thanks to the decrease in defaulting loans to companies. The stock of bad loans (net of the value adjustments) dropped by 38 billion, reaching 135 billion. If we consider the value adjustments, the reduction has been of 65 billion, setting at 285 billion.
The impact of bad loans on the total loans issued by banks dropped by 14.5% at the end of the year including value adjustments and by 7,5% net of value adjustments (respectively 17.3% and 9.4% for 2016). The stock of net NPL reduced by other three percentage points compared to December 2015.
In 2017, banks sold on the market gross bad loans for 35 billion (8 billion in 2016), cancelling them from their accounts. Two-thirds of such operations consisted in securitisations, mostly using the public guarantee. Other 18 billion were transferred to SGA, a subsidiary of the Ministry of Treasury, following the liquidation of Banca Popolare di Vicenza and Veneto Banca. Finally, other 3 billion were transferred with the acquisition of three saving banks by a foreign bank.
The ordinary credit collection activity has contributed to reducing the NPL stock. In 2017 the coverage rate for the past due exposures, measured by the ratio between the adjustments and the stock of bad debts, grew by two percentage points setting at 53%, a level way above the average of banks in Europe.
The coverage rate for unsecured bad loans grew by half percentage point setting at 63.5%. Moreover, the capacity of banks of dealing with the losses caused by bad loans improved. Between 2015 and 2017, the ratio between this type of assets, net of adjustments, and the capital, whose quality improved, decreased from 105% to 70% (for the biggest banks, from 118% to 74%).
Concerning collection times, the report by Banca d’Italia dedicated a whole chapter to the duration of property enforcement procedures, stressing how the regulations introduced between 2015 and 2016 had positive effects in terms of results. The procedures which concluded with the pre-sale of the property within a year grew from 10% to 19%, while those ended with the pre-sale within 18 months increased from 27% to 35%. Hence, the average duration of procedures concluded with a pre-sale reduced by one-tenth. Concerning the sale phase, the consequences of the new regulations are more visible: the procedures closed with the sale within a year and those closed within 18 months have respectively increased from 8% to 21% and from 17% to 36%. Therefore, the average duration of the sale phase halved.
However, there are still significant differences between courts regarding enforcement procedures, which might be connected to organisational and managerial factors. According to Banca d’Italia, the guidelines approved by the Superior Council of Magistracy in October 2017 will favour the diffusion of best practices among courts. A thorough analysis of the underlying causes (for instance, the lack of the adequate incentives or the necessary resources) might help in identifying new solutions to optimise the procedures.
Finally, the use of extra-judicial instruments for the collection of credits is still very limited. The survey by Banca d’Italia carried out in April 2018 on 290 brokers shows that only a few banks use the patto marciano (DL 59/2016) for new contracts, while this possibility is still under evaluation by a large part of the brokers (61%).
Translator: Cristina Ambrosi