Portugal 
Spain 
Greece 
Banks, slow courts delay the collection of bad loans
19 March, Il Sole 24 Ore
The new provisions of the European Central Bank hit Italy in its weakest point: slow courts. The ECB dictates that the secured bad loans should be collected by banks within seven years, otherwise they must be devaluated to 0 in the financial report. The issue is that in Sicily and in Basilicata respectively 56% and 46% of the property auctions last over 7 years. The Central Bank also stated that an unsecured loan, hence without a guarantee, must be brought to zero after two years if not collected. But in Puglia, Molise, Basilicata and Campania it takes generally two years to have a court order for payment. In addition, bankruptcy proceedings last over ten years in many Italian regions. All numbers well above the European average.
Slow courts not only penalise Italy since they discourage international companies from investing in the country but also they represent a huge cost in the banks’ statements. Especially now that the ECB requires faster collections. If the courts take longer than what the ECB states to be the maximum time to collect bad loans, there’s clearly a problem. The long court proceedings are a big issue more than ever. In order to avoid that banks will reduce the issuance of loans to families and businesses in reaction to the provisions, or that they will be forced to sell out bad loans (impacting negatively their figures), it’s necessary to intervene now at least on two fronts. One is the speed of justice, the other is the capacity of banks to manage better bad loans in order to reduce times. Starting obviously from extra-judicial negotiations.
The numbers are disheartening. According to the data gathered by Sistemia (a company operating in NPL collection) and updated to March 2018, it’s quite impossible to collect an unsecured loan in two years through legal ways. When an unsecured loan becomes non-performing, the bank loses from 287 days (in Marche) to 312 days (in Sardinia) to raise a court order for payment. Hence, it takes nearly a year just to do this. Then it takes additional time for the court order to become an order to the debtor to pay. It takes in total two years in most of the regions, the maximum time dictated by the ECB. Even the most efficient regions such as Liguria (510 days in total) don’t get close to this deadline. The issue is that the credit collection process doesn’t stop here. Once got the order court, the bank might wait up to two years to cash the payment from the debtor.
The same figures – updated to March 2018 – are valid also for property auctions. Between the time needed by the bank and the time that takes for the court to sell the property on auction, it takes from a minimum of 3.9 years (in Valle d’Aosta) to a maximum of 8.5 years (in Sicily). Also in this case, the sale of the property on auction doesn’t necessarily mean that the bank has collected its credit. “Once closed the auction, the money is lodged on a court’s account – explains Paolo Sgritta, Sistemia General Director -. At this stage, the delegate from the court has to figure a partition plan to satisfy all the creditors. This might take up to two years”. Therefore, times are getting longer and longer. The times for bankruptcy proceedings are also long, well above the European average of 2 years.
Obviously, the first issue to solve is the one concerning slow courts. “However, an improvement on this matter is very unlikely – notes Angelo Bonissoni, CBA Managing Partner – Nowadays the system is slow because courts are overworked, not because the judicial system doesn’t work. This is proved by the fact that, even with the same legislation, some courts in Italy are faster than others”. Banks, from one side, have to suffer from the inefficiency of the country, from the other side, they have to repair to their own inefficiency. For instance, working more actively on bad loans on the extra-judicial side. Hence, seeking agreements with the debtors.
Alternatively, they might speed up the waiting times with courts. “We have a team exclusively dedicated to following up court delegates, so they will proceed faster with the partition after the auction – explains Sgritta – In this way, times are greatly reduced”. Another way to speed up the procedures is to participate in property auctions (many banks have created Reoco exactly for this purpose). This helps to reduce the number of inquorate auctions. In conclusion, there are several ways to bypass the problem. The hope is that the addendum from the ECB won’t’ reduce the issuance of credit to the goods economy but, on the contrary, it will create a virtuous circle in the country allowing banks and courts to overcome their inefficiency. Not because the ECB has said so, but because it’s good for everybody.
Source: Il Sole 24 Ore
Translator: Cristina Ambrosi