NPL Market Watch – January 2020: 325 billion Euro of NPEs to manage in Italy. 37 billion Euro of NPLs forecasted to be sold in 2020, 27% of which on the secondary market

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The tenth edition of Banca IFIS’s NPL Market Watch document is now online: “2019 Transactions Market and Servicing Industry”

Milan, 29th January 2020 – Italy currently has 325 billion Euro of NPEs to be collected: 246 billion Euro are banking bad loans, while 79 billion Euro are classed as Unlikely to Pay.

In detail, 141 billion Euro of NPEs are still recognised in banks’ financial statements (77 billion Euro classified as bad loans and 64 billion Euro as UTP); from 2015 until the end of 2019, 198 billion Euro of NPEs have been transferred to funds, Gacs vehicles, specialist banks and investors with recovery platforms; of these, at the end of last year, 14 billion Euro of bad loans and UTPs were estimated to have been collected or “cancelled” in that they are no longer classed as write-off on recovery. These are the main observations recorded in the tenth edition of Banca IFIS’s NPL Market Watch: “NPL Transactions Market and Servicing Industry”.

But what are the estimates for 2020? And, especially, how is the market moving?
Based on deals already announced (39 transactions), it is estimated that NPL transactions with 37 billion Euro in gross book value will be carried out before the end of 2020, an increase compared to the 32 billion Euro carried out in 2019. Of these 37 billion Euro, around 27% could be exchanged on the secondary market (against 17% of the 2018 figure), whilst 15% of NPLs may be deconsolidated via securitisation transactions that benefit from the state guarantee on NPLs (GACS).

 

The main points included in NPL Market Watch are as follows:

  • – NPE stocks continue to fall: Bank NPEs totalled 159 billion Euro at the end of the third quarter of 2019 (last available figure), a reduction of 182 billion Euro (-53%) from the peak recorded at the end of 2015, with Italy holding 341 billion Euro of stocks. The reduction trend is in line with the European average which, from 2015 to 2019, saw NPEs reduced by 48%.
  • – A drop in bad loans: at the end of the third quarter of 2019 NPL stocks consisted of 86 billion Euro of bad loans, a fall of 115 billion Euro from the end of 2015 when NPLs in Italy totalled 201 billion Euro. The forecast at the end of 2019 sees NPL stocks falling further to 77 billion Euro (-62% compared with 2015 data). Today, the coverage ratio for NPLs is above 60%.
  • – Unlikely To Pay (UTP): the coverage ratio for UTPs is stable and is set to reach 39% at the end of 2019. Seven billion Euro of UTP transactions are forecasted for 2020, a total of 10 deals. The passage from UTP to NPL, the danger rate, remains above pre-financial crisis levels at 1.2%, compared with 0.9% recorded in 2007. The construction industry still shows the highest rate of deterioration.
  • – Focus on prices: secured portfolio prices remained substantially stable, fluctuating between 33% in 2018 and 34% in 2019, while unsecured asset prices grew from 6% in 2018 to 8% in 2019.
  • – Who’s buying and who’s selling: with 18.6 billion Euro of acquisitions from 2015 to 2019, Banca IFIS is confirmed as being the second biggest investor in NPLs. Only Quaestio Management Capital (Euro 29.2 billion) has made acquisitions of greater value. The top 10 sellers make up 66% of NPL transactions carried
    out between 2015 and 2019. During these four years, the main originators were: Unicredit with Euro 41.5 billion of NPLs transferred, followed by MPS with Euro 32.8 billion, then Banco BPM (Euro 16.3 billion) and Intesa Sanpaolo (Euro 13.8 billion).

 

Focus on GACS:

  • From 2016 to 2019, thanks to the GACS state guarantees, banks transferred 70 billion Euro of bad loans on to the market (around 72% are corporate NPLs and the remaining 28% are individual NPLs), making up 24 securitisation transactions. The 2020 estimate is for a further 6 billion Euro of NPLs to be transferred through the GACS scheme.
  • In the last two years, the price trend shows a correlation between the quota of guaranteed portfolio and the presence of a higher secured component: in 2018, the average of prices was 28.7%, with 73% as secured NPLs; in 2019, the average is 24.7%, with 68% as secured loans.
  • The recovery performance relating to GACS portfolios is on average 3%, in line with market recovery trends (average 3.1%). Five Gacs portfolios surpassed the business plan targets in terms of both gross and net collection.

 

The January 2020 edition of NPL Market Watch can be downloaded from this link.


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