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Italy is the first NPL market. But the future of Gacs (and not only) is uncertain

05 July, Il Foglio

Banks are hoping for the best: one of the crucial points the Conti administration will have to solve is the renegotiation with the European Commission of the so-called Gacs, the guarantee on the securitisation of NPL. The Government has recently submitted the extension request to the Dg Competition in Brussels, as the deadline is on 6th September. The Ministry of Treasury constituted Gacs in 2016 and had already extended in 2017. Many banks needing to dispose of their bad loans depend on this scheme. Above all, there is Monte Paschi di Siena, which carried a large securitisation for a value of 24 billion euro, 3 billion of which rely indeed on Gacs. There is also Bpm, which is about to put on the market bad loans for a value of 3.5 billion (allegedly there are seven offers on the table).

However, the Gacs requests from banks are plentiful, and they’re currently clogging the Ministry’s offices. There won’t be enough time to process them all by the deadline. Here’s how it works: if the Gacs is granted, the bank will have to sell its non-performing loans at very low prices since the State is offering a guarantee to the investors in case of credit insolvency. Now, the Government has to request to Brussels the extension of the scheme since this is subject to the examinations in the matter of State bailouts.

The system was created two years ago in the middle of the financial crisis in Italy, and it has been an impulse for the transactions of banks’ bad loans, as the market was at a standstill despite the incentives from the International Monetary Fund. Thanks to Gacs, Italian banks started selling NPL portfolios of important dimensions to the specialised companies of the sector. According to a recent survey by PwC, 2018 will close with transactions for over 70 billion euro. And someone is even more optimistic. Banca Ifis, for instance, will reach 84 billion by the end of the year. In 2013 the transactions were only 4 billion, but they grew exponentially till 2016 (30 billion) and then reached 64 billion in 2016. As a result, Italy is Europe’s biggest NPL market due to its massive stock of bad loans that accumulated during the recession. The stock, however, has reduced from 324 billion in 2016 to 264 billion in 2017 and, considering the many operations in the pipeline, this number will further diminish.

Besides Mps and Bpm, there are on the market the bad loans of di Intesa Sanpaolo (10 billion), Ubi Banca (3-4 billion), Credit Agricole (6 billion), Creval (1,6 billion), Iccrea (1 billion). According to the rumours, a 3-billion portfolio from Unicredit will arrive soon on the market. They’re considerable amounts, unimaginable just a couple of years ago. The new entries are UTPs (unlikely to pay), mostly concerning companies, which require acting through company reorganisations rather than collections.

“No other country in the EU has a similar situation”, explains Vito Ruscigno, PwC partner, “Italy has been a pioneer with the creation of an NPL market which is attracting many international investors. Some of these were already positioned in Spain, which is now considered a mature market, while in Italy the market is at its liveliest”. After all, who invests in this market expects double-digit returns or even 15% of the invested capitals. The PwC report also lists the many international players that between 2016 and 2018 invested in the Italian market acquiring shares of the NPL management platforms: Kkr, Bain Capital, Intrum, Lindorff, Davidson, Kruk, Arrow. The Italian companies in the industry, or those which are headquartered in Italy (even though it doesn’t make much difference nowadays since the market has globalised), are Cerved, Quaestio, Banca Ifis, and Dea Capital.

The bonanza is destined to go on, as starting from April 2018 banks have also to accelerate their provision times for bad loans following the addendum from the ECB, although on this matter there is still some uncertainty. The companies of the sector and the experts are worried about the views of the new Government regarding saving. Furthermore, the chapter 5 of the Government contract includes the suppression of the regulations concerning the enforcement actions towards debtors without a preventive authorisation from the judges. Basically, an obstacle to whom must collect the credits. It’s clear that the matter over credit collection worries the League in particular, as in the north-east of the country, where the party is strongest, there are 18 billion bad loans to be collected from the former Venetian banks, recently gone to Sga under the guidance of Marina Natale.

There is also another matter that might influence the political and institutional choices regarding this market, which, according to its supporters such as the International Monetary Fund, is meant to incentivise the issuance of new credit to families and businesses, relaunching in this way the economy of the country. “It’s a dogmatic vision. In my opinion, there is no connection between the disposal of the bad loans by banks and their greater availability to issue funding”, explains Andrea Resti, professor of Finance at the Bocconi University. “In the short-term, the transfer of NPL represents a capital loss for the banks, even though they benefit from the process in terms of more efficiency”. After all, the loans to families and companies haven’t increased as they were expected to. “The point is that we’re assisting at a structural change in the demand”, explains Carmelo Carbotti from Banca Ifis, a leading company in the NPL market and specialised in SME. “Companies are choosing traditional banks less and less. Loans decreased in 2017 in Italy by 17% compared to 2008. On the other hand, alternative funding solutions such as leasing, factoring and mini-bonds are growing”.

Source: Il Foglio

Translator: Cristina Ambrosi