(Visited 69 times, 1 visits today)
(Visited 69 times, 1 visits today)

NPL. The effects of the ECB guidelines

19 April, Blasting News

The ECB guidelines on the management of NPLs might lead the Italian banks to increase their provisions on bad loans and consequently, their disposal operations. It will be an incentive especially for unsecured loans since these are destined to be fully devalued after two years from the classification as non-performing loans.

An additional incentive, especially concerning the most granular exposures, is given by the credit management that may result being very expensive if kept internal, while it will grant high commissions if outsourced. As a result, it will not be convenient keeping these exposures.

Estimations on the main provisions

According to Equita SIM, the additional requirements as a consequence of the new guidelines might amount to 30 base points in the Cet1, which is not particularly burdensome considering the average of 351 base points representing the Italian banks’ buffer.

The unsecured component, which will be more immediately impacted by the ECB addendum, represents about one-fifth of the total NPL stock and will be for large part object of the transfer activity. The new regulations from the European Commission will also be impact provisions, as they substantially match the guidelines from the Surveillance Authority.

The possible effects on the lending policies

An indirect effect might be registered in the credit lending policies. In fact, the obligation of fully devaluating in short times might induce banks to request more guarantees, higher returns or making a stricter selection.

According to Giovanni Ravazzoli from Equita SIM, the strategies might include the reduction of the amounts issued, especially for what concerns consumer credit in the retail and small business segments, as well as the shift towards the role of banks as distributors involving the participation of companies specialised in consumer lending since these are not object of surveillance by the ECB.

Another element to consider, keeping in mind the private equity process on the servicing platforms, might be the incentive to stop collection operations in order to avoid the costs to adjust to the stricter regulations.

Source: Blasting News

Translator: Cristina Ambrosi