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NPL: Unicredit is the best according to Equita

23 February, Finanza Report

Equita Sim has published a positive dossier regarding the quarter results of the main Italian banks.

More in detail, the analysts refer to the bad loans reduction strategies and thus the risk reduction, speaking about “encouraging results” concerning the figures for the fourth quarter of 2017. After all, we must remember that last year many banks updated their disposal programs speeding up their transfers, as shown by the Npe ratio that has gone from 13.5% to 10%. Furthermore, the NPL stock in the fourth quarter dropped by 5 billion in comparison with the previous quarter. This is the third major reduction since 2008, and “it confirms the right path started that should be continued also in the next years”.

Equita continues: “this path is consistent with our outlook that sees a manageable risk with a reduction in two phases of the Npe ratio and the compliance in the long term (2022-2023) with the European average of 5%”. In this context, Sim reminds that the bad loans and impaired loans stocks are supposed to reduce of other 67 billion by 2021, 15 billion more in comparison with the initial objective. However, there are some exceptions such as Carige and Bper where the disposal process will go faster. Hence, positive surprises on the general trend are not to be excluded.

The acceleration of the NPL disposal process had already started last year, while for this year the outlook is for a further reduction. For instance, PwC assessed that in December bad loans went from 324 billion at the beginning of the year to 250 billion at the year-end, and the value of transfers for 2018 is estimated around 70 billion, “including also the operations just concluded” such as the 26.1 billion securitisation by Mps.

Now the question is whether banks will manage to reach their objectives or not. Equita defines these objectives “feasible considering the recent NPL disposals and the collection trends. According to the estimations, reductions will be leveraged by NPL transfers for 40 billion which will grant a good safety margin in relation to the collection/proceeds trend (40 billion) and to the new NPLs that will be generated (with an average default rate of 1.3%).

In this context, Unicredit, together with Banco Bpm and Mediobanca, is one of the favourite banks and it should enjoy “an above average benefit from the improved risk perception” commonly associated with the Italian banking system.

Source: Finanza Report

Translator: Cristina Ambrosi

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