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Real estate: easier collections for banks
30 March, Milano Finanza
Fewer restrictions for banks when collecting bad loans guaranteed by real estate. There are new regulations from Banca d’Italia regarding real estate investments for banks which will be under revision until 18th May. The new regulations are aimed at “favouring a more proactive management of the real estate guarantees, as well as accelerating and facilitating the collection of properties. These initiatives are included in the bad loans reduction process started by Italian banks, with a particular attention on loans backed by real estate”, explains Banca d’Italia. The document is aligned with the other regulations recently introduced, such as the possibility for banks to obtain the ownership of the propriety as a guarantee of the loan (as long as the property is not the main dwelling) in case of default of the company. The objective of this agreement is the extra-judicial enforcement of the real estate guarantee for credit collection purposes, instead of the ordinary insolvency enforcement procedure.
The new regulations by Banca d’Italia are aimed at “favouring the efficiency and promptness of the NPL collection procedure, also through the acquisition of the properties put as guarantee”. The long times of the judicial procedures in Italy are one of the reasons why there are so many bad loans on banks’ statements. Speeding up collection times has become increasingly important now, after the new EU and ECB regulations on calendar provisioning, imposing the devaluation of the NPLs after a certain time.
More in detail, the intervention by Banca d’Italia changes the restrictions on real estate investments, that cannot exceed the total amount of the bank’s funds. It’s currently possible to exceed this limit only in the case of properties acquired through credit collection, with an additional equity requirement and the obligation of immediate divestiture of the property. The regulations confirm this general limit that avoids an excess of fixed assets, but the threshold can be easily crossed “without any additional requirement” if the properties are acquired through credit collection. Moreover, the obligation of immediate divestiture has been eliminated. Instead, the divestiture will happen within an amount of time deemed reasonable, taking into account the objective of preserving the realisable value, in conformity with the market practice. Basically, banks will not have to get rid of said properties as quickly as possible anymore, but they can avail themselves of some buffer time (generally, not longer than four years) in order to avoid impacting too much their income.
Furthermore, the Banca d’Italia regulations remind the rights and duties of banks, such as their duty to implement procedures for the efficient management of real estate guarantees and for the optimization of collections. Finally, there are also some guidelines for real estate companies specialised in supporting banks’ real estate credits (Real Estate Owned Companies, also known as Reoco). Banks use Reoco to push third parties in participating in property auctions in order to avoid an excessive value loss and to increase the collections. The objective is to buy, manage and enhance the properties acquired through the collection activity.
Source: Milano Finanza
Translator: Cristina Ambrosi