Portugal 
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Solutions for the judicial collection of NPLs
05 December, Milano Finanza
Of over 1,000 billion NPLs in Europe, for nearly 300 billion of bad loans the only solution is the forced judicial collection of the debt. However, there are huge differences between creditors’ expectations and the actual collected amounts. Although the default rate has been decreasing (by approximately 2%), collections are still difficult. The recovery rate was 13-14% in 2017 which is very low since many collections concern loans backed by real estate. The main reason is due to the judicial system and the lengthy collection procedures. A report by OSCE in 2013 on the duration of the ordinary actions in Europe shows that it takes 548 days on average to complete all the proceedings against the 2,800 days in Italy. The latest figures show an improvement, but the situation has not substantially changed. The most critic duration is that property auctions. The national average duration has gone from 5.11 years in 2016 to 5 years in 2017, but we’re still far from the 2 years reported in other countries. The recent legislative reforms allowed procedures to speed up, as showed by the Tsei survey titled “Survey on the duration of procedures in the Italian Courts for individual foreclosure procedures” based on the data from 140 courts registered on the portal of the Ministry of Justice. It emerges that the main problem is not the duration of the proceedings, it’s rather the significant differences from a Court to another. The most efficient Courts such as Trieste (1.62 years) and North Naples (1.69 years) are aligned with the European average, while the Court of Locri reported 16 years. Moreover, property auctions are burdened by costs, as the expense procedures take up to 25% of the earnings, which are already by 50-60% less than the appraised value.
Furthermore, we must make two considerations. Firstly, the duration has a relative value, as the objective of a creditor is not setting up an auction as soon as possible if it will end up inquorate, but the depreciation of the selling price. On the other hand, the problem of the so-called cash in court is undeniable. It refers to the amounts paid by the winning bidders or derived from the settlement of a bankruptcy procedure that lie in the Court offices for very long times (often years) without any reason before being distributed to the creditors. There are no official data, but the amount is estimated to be around 3 billion euro, which is the cost of inefficiency. A corrective action should be taken based on this structural inefficiency of the system.
Regarding auctions, the solution might be the development of a secondary real estate market for auctioned properties, or tax reliefs, or instruments to support Reoco in the remarketing of the acquired assets, or, ideally, dedicated projects with particular attention to the social aspect. The judicial system needs to be digitalised: the introduction of ordinary online procedures has been a breakthrough, as well as the digital tools supporting the management of enforcement procedures. This is the direction to take: the fact that peace judges are not connected through a digital infrastructure is anachronistic.
Finally, another issue is that the judicial system is short-staffed. The figures from Cepej (European Commission for Efficiency of Justice) show that in Italy the number of judges is far below average: 11 judges every 1,000 people against the European average of 25.9 judges every 1,000 people. If we consider that an expansion of the staff is very unlikely, we might think about the privatisation of some procedures with the outsourcing of part of the infrastructure to suitable servicers and the assignment of some activities to specialised operators.
Source: Milano Finanza
Translator: Cristina Ambrosi