S&P: a standstill of the economy is coming up. NPLs have to be further reduced

14 February, Fortune Italia

In order to be safe from a potential stagnation of the global economy, the rating agency S&P Global has recommended to several European banks – Italian ones included – to continue reducing their NPL stock. S&P acknowledged the good work done by Italy so far. It believes, however, that “Italian banks would be the most impacted by a possible standstill of the economy”, considering the difficulties the country is going through, as it has just entered into a technical recession phase. Moreover, the Italian banking system “is particularly exposed to the credit on merit of domestic companies, representing about 55% of the loans and 77% of the impaired loans, as these companies are the most vulnerable to the economic cycle”.

As the rating agency reminds, the bad loan stock in Italian has decreased from 2015 by 40%, while provisions have gone from 47% to 54%, although the net npe ratio (the impaired loans/total assets ratio) in 2018 was steady at 5.5%. Such a result is “well above the European average of 1.7% and the benchmark of 2.5% recommended by the Euro Summit last December”. A pat in the back won’t be enough to deal with the challenges waiting ahead.

According to S&P, Italy is not the only country which will have to work more. Several banks “will have to make further efforts to solve the issue of the asset quality before the next negative cycle of the economy. For this reason, we expect that Southern European and Irish banks would continue reducing their NPL stocks in 2019 and 2020, especially through their sale”, states S&P in its report on European banks.

Source: Fortune Italia

Translator: Cristina Ambrosi

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